2012 Annual Report
I
Y
T
N
U
T
R
O
P
P
O
OPPORTUNITY
– OUR VISION –
To become a Canadian
mining company.
– OUR MISSION –
To safely and efficiently discover,
develop and extract Canada’s
mineral resources.
– OUR VALUES –
OUR PEOPLE:
Who we will treat with dignity
and respect.
OUR COMMUNITIES:
Where we will maintain open and
honest communications.
OUR ENVIRONMENT:
Where we will operate safely,
efficiently and respectfully.
OUR COMPANY:
That we will hold to high standards
and ethics.
OPPORTUNITY
“
With two world-class mineral discoveries, an experienced
management team, an environmentally and socially responsible
development plan and a commitment to excellence,
Noront defines opportunity.
”
Approximately 1100 Metres
-250 Metres
-500 Metres
Eagle’s Nest
Blackbird
-750 Metres
-1000 Metres
-1250 Metres
-1500 Metres
-1750 Metres
Open at Depth
-2000 Metres
Eagle’s Nest Mineral Reserve and Resource Estimate
Tonnes
Classification
(millions)
5.3
5.8
11.1
9.0
Proven
Probable
Proven and Probable
Inferred Resources
Nickel
(%)
2.02
1.38
1.68
1.10
Copper Platinum Palladium
(gpt)
1.01
0.78
0.89
1.16
(gpt)
3.45
2.76
3.09
3.49
(%)
1.04
0.72
0.87
1.14
Blackbird Mineral Resource Estimate
Classification
Measured
Indicated
Measured and Indicated
Inferred Resources
Tonnes
(millions)
9.3
11.2
20.5
23.5
Cr203
(%)
37.44
34.36
35.76
33.14
Cr:Fe
Ratio
2.00
1.95
1.97
1.97
Noront Resources Ltd. – 2012 Annual Report – 1
Report from the President and CEO
Fellow Shareholders,
Opportunity!
With two world-class mineral discoveries,
an experienced management team, an
environmentally and socially responsible
development plan and a commitment to
excellence, Noront defines opportunity.
At our flagship Eagle’s Nest deposit,
we reported the first mineral reserve
estimate in the Ring of Fire, a reserve fully
supported by a pre-feasibility study prepared
by independent experts from some of the
world’s most qualified mining suppliers.
The study clearly demonstrates Eagle’s
Nest could be one of the lowest cost nickel
producers in the world.
Less than two kilometres to the south of
Eagle’s Nest, drilling at Blackbird tripled
the initial chromite resource estimate from
2009 but more importantly, it proved that
the quality and potential size of the chromite
resource at Blackbird is consistent with other
chromite discoveries in the region.
Wesley C. Hanson
President and CEO
“
We are focused on building and operating a
safe, environmentally and socially sustainable
mine and mill complex that will establish
new standards for the mining industry while
returning significant value to our shareholders.
”
We submitted a comprehensive development
plan for Eagle’s Nest to the governments
of Ontario and Canada, outlining a project
with one of the smallest environmental
footprints in the world. Our development
plan features innovative, cost-effective
engineering solutions to minimize our
environmental impact. At the same time
our plan offers considerable capital savings
Noront Resources Ltd. – 2012 Annual Report – 2
through innovative design ideas such
as establishing the mill in underground
chambers as opposed to costly surface
construction.
We have sponsored multiple initiatives
including Mining Matters camps, skills
surveys, job fairs, student bursaries, school
trips, radio programs and internet portal sites
to inform local residents about our proposed
development plans. We have provided
Oji-Cree translations of key project facts,
to ensure all community members can learn
about our proposed development plans and
the potential impacts on the environment.
We are focused on building and operating a
safe, environmentally and socially sustainable
mine and mill complex that will establish
new standards for the mining industry
while returning significant value to our
shareholders. This includes working with
our community partners to establish early
training programs allowing community
members to develop the necessary skills that
will allow them the opportunity for future
jobs and business prospects.
The quality of our assets, vast exploration
potential and the capability of our
management team led to large investments
by Baosteel Resources, a division of Baosteel,
one of China’s largest steel and stainless steel
manufacturers and Resource Capital Funds,
a large US-based investment fund focused
on resource companies.
Although, our share price lost 42% of its
value during the fiscal year, fueled by a
significant decline in the nickel price, which
fell by 35% over the same period, other
junior companies focused on developing new
nickel assets in Canada and abroad saw their
share prices decline by an average of 52%
during the year.
In addition, global uncertainty had an overall
negative impact on the capital markets,
particularly the junior mining sector. The S&P/
TSX Venture Index lost 38% over the fiscal
year as shown in the chart to the right.
Despite the challenging market conditions
this past year, the future fundamentals for
both nickel and chromite remain very strong.
Although analyst consensus is for continued
downward pressure on both nickel and
the junior mining sector as nickel supply
exceeds nickel demand for the foreseeable
future, most analysts agree that stainless
steel production will continue to grow which
will lead to increased demand for nickel and
chromite.
By 2015, many analysts predict demand will
outstrip available supply, leading to increased
nickel prices in 2015 and into 2016.
Commercial production at Eagle’s Nest,
scheduled to commence in 2016 – 2017,
would be ideally positioned to benefit from
this period of improved metal prices.
With a strong balance sheet, outstanding
assets in a politically stable country, a proven
management team and a socially and
environmentally responsible development
plan, your Company represents an
outstanding investment opportunity.
I would like to thank you all for your support
and dedication this past year. On behalf
of the Board and the Noront team I look
forward to another successful year as we
continue our efforts in 2013.
(signed)
Wesley C. Hanson
Apr
May June July Aug Sept Oct Nov Dec Jan Feb Mar Apr May
0.00%
-10.00%
-20.00%
-30.00%
-40.00%
-50.00%
-60.00%
Noront
Developers
LME Nickel
TSXV Index
“
With a strong balance sheet, outstanding assets in
a politically stable country, a proven management
team and a socially and environmentally responsible
development plan, your Company represents an
outstanding investment opportunity.
”
Noront Resources Ltd. – 2012 Annual Report – 3
Operational Summary
Direct drilling costs totalled $13.7 million and a
total of 29,251 metres were drilled for an average
drilling cost of $469 per metre. The following
table demonstrates a steady decrease in direct
drilling costs over the past three fiscal years
as management has focused on reducing
inefficiencies.
Year
Expenditure Metres Cost/Metre
F2008 $ 13,372.000
16,207
F2009 $ 23,565,000
40,915
F2010 $ 22,967,000
41,540
F2011 $ 22,222,000
41,209
F2012 $ 13,711,000
29,251
$ 847
$ 576
$ 553
$ 539
$ 469
The Company has realized significant resource
growth as a result of its investment in drilling
both the Eagle’s Nest and Blackbird deposits.
The following chart shows the resource growth at
Eagle’s Nest for the past five fiscal years.
Eagle’s Nest Resource Growth
Inferred (M tonnes)
Indicated (M tonnes)
Measured (M tonnes)
20,000.0
15,000.0
10,000.0
5,000.0
s
e
n
n
o
t
K
-
F2008 F2009 F2010 F2011 F2012
Fiscal Period
The Eagle’s Nest resource more than tripled from
2.8 M tonnes at the end of fiscal 2009 to 11.2 M
tonnes in fiscal 2010. Drilling again doubled the
resource in fiscal 2011 to 19.9 M tonnes and the
deposit remains open at depth.
Paul Semple
Chief Operating Officer
The Corporation’s stated objectives for fiscal 2012
were:
Eagle’s Nest
• Complete a pre-feasibility study on the
Eagle’s Nest deposit and target completion
of a full feasibility study on the Eagle’s Nest
complex in the 2nd quarter of calendar 2012;
• Continue to engage stakeholders on options
for infrastructure development and funding;
• Continue to engage First Nations
communities and identify business and
employment opportunities; and
• Advance the Eagle’s Nest Project by
initiating the permitting process.
Blackbird
• Complete exploration drilling on the
Blackbird chromite deposits to increase the
size and confidence of the resource.
Exploration
• Continue to evaluate and test the exploration
potential to increase the nickel, copper,
platinum and palladium resources around
Eagle’s Nest and regionally in the Ring of
Fire.
The Company successfully met all it’s established
objectives for fiscal 2012 (May 1, 2011 to April 30,
2012) realizing total expenditures of $21.8
million.
Noront Resources Ltd. – 2012 Annual Report – 4
Chromite Resources in the Ring of Fire
Blackbird (2012)
Big Daddy (2012)
Black Thor (2012)
Black Creek (2012)
In August, 2011, the Company released the
results of the Eagle’s Nest Pre-feasibility Study,
establishing the first mineral reserve in the Ring
of Fire.
Simultaneously, the Blackbird chromite resource
increased from 14.9 M tonnes in fiscal 2010
to 44.0 M tonnes in fiscal 2012. Our drilling
during fiscal 2012 effectively demonstrates that
Blackbird remains open at depth and offers
similar grades, chrome to iron ratios and size
potential as the other chromite discoveries in the
Ring of Fire.
The chart on the right outlines the total chromite
resources identified to date within the Ring of
Fire that are supported by published technical
reports.
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
-
s
e
n
n
o
t
M
Measured
Indicated
Measured
& Indicated
Inferred
Total
Resource Classification
Noront Resources Ltd. – 2012 Annual Report – 5
Ni Cash Costs Net of Credits (US$/lb Ni)
Expected Cash Costs Actual Reported 2010/2011 Cash Costs
-$2.00
-$1.00
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
Noront - Eagle’s Nest
Sherritt - Ambatovy
Vale = Goro
Vale - Onca Puma
Xstrata - Koniambo
Western Areas - Australia Operations
BHP - Leinster
BHP - Cerro Matoso
Norilsk - Norilsk Division
Vale - Voisey’s Bay
Votorantim - Tocantins
Xstrata - Sudbury Mines
Sherritt/Cuba - Moa Bay
Xstrata - Raglan
BHP - Mt. Keith
African Rainbow - Nkomati
MCC - Ramu
Anglo American - Barro Alto
PT International - Soroako
Vale - Ontario Division
Glencore - Murrin Murrin
First Quantum - Ravensthorpe
Source: Raymond James Ltd. and Company Reports
The Pre-feasibility Study valued Eagle’s Nest
at between $400 to $600 million based on the
Assumed Metal Prices1 and various discount
rates and suggest a return on investment in excess
of 20% on an initial capital investment of $734
million. The pre-feasibility study indicated that
Eagle’s Nest would be one of the lowest cost
nickel producers in the world with production
costs of minus $0.70 per pound of nickel, a result
of the valuable by-product metals included in the
Eagle’s Nest ore.
Based on these highly favourable results, the
Company decided to initiate a full feasibility
study for Eagle’s Nest with a targeted completion
date of May 2012.
The Feasibility Study was largely completed
by May 2012 as planned, however release
was delayed as a result of the May 9, 2012
announcement by the Ontario Government
suggesting, for the first time, provincial support
of potential infrastructure development to the
Ring of Fire.
The government announcement focused on an
access route and capital participation plan that
was not available to Noront for inclusion into the
Feasibility Study. As a result, the Company had
no choice but to delay release of it’s completed
study until it could evaluate the impact of the
government’s proposal.
The Company is currently in discussions with
the Government of Ontario having expressed
an interest in participating with other industry
partners in developing road access to the Ring of
Fire.
Noront is committed to the safe and efficient
discovery, development and extraction of mineral
resources as outlined in the Company’s Mission
Statement and Values. We are committed to
developing our assets in the Ring of Fire in an
environmentally and socially responsible manner
for the benefit of all Ontarians.
We are proud of our environmental stewardship
to date and pleased to report that during fiscal
2012, the Company has operated in the Ring of
Fire without any citations.
1 Nickel: US$8.62 per pound, Copper: US$3.08 per pound, Platinum: US$446 per ounce, Gold: US$1,130 per ounce.
Noront Resources Ltd. – 2012 Annual Report – 6
Breeding Bird and Habitat Survey
Baseline environmental data collection has been
ongoing since 2009. During the fiscal year,
additional data was collected in support of the
following:
• Meteorological Study
•
• Migratory Bird Survey
• Vegetation Survey
•
•
•
• Hydrogeological Studies
• Aboriginal Traditional Knowledge Study
•
• Archaeological Study
Surface Water Quality Study
Baseline Hydrological Studies
Fisheries Studies
Traditional Land Use Study
The studies noted above were concentrated in
the immediate vicinity of the planned Eagle’s
Nest underground mine and along the proposed
access corridor as outlined in Noront’s Project
Description.
Project Description
On March 23, 2011, the Company filed its
Project Description for the Eagle’s Nest deposit
with the Canadian Environmental Assessment
Agency and the Province of Ontario’s Ministry of
Northern Development, Mines and Forestry.
On December 2, 2011, the Company announced
that the draft Terms of Reference and the Draft
Environmental Impact Statement Guidelines
for the Eagle’s Nest Mine were available for
public comment. The Canadian Environmental
Assessment Agency (“CEAA”) recommended a
Comprehensive Review Process for the Eagle’s
Nest Project. Draft Terms of Reference and
a Draft Environmental Impact Statement
Guidelines have been made available for public
comment at www.ceaa.gc.ca.
The Project Description outlines what the
Company believes is an environmentally and
socially responsible proposal for the construction
and operation of a 1.0 million tonne per annum
underground mining and milling complex.
Underground mining will utilize electric,
trackless load, haul dump (“LHD”) equipment.
The current plan considers highly productive
sub-level blast-hole stoping of the Eagle’s Nest
deposit. Waste rock from the underground
development will be re-cycled to provide
construction aggregate for the limited surface
facilities consisting of a camp, airstrip, office
building and access roads.
Access Ramp
Crushing &
Grinding Circuit
Maintenance
Shop
Flotation Circuit
Aggregate
Source
Production Levels
& Decline
The surrounding host rock at Eagle’s Nest is very
competent and capable of supporting large open
spans. The Project Description proposes that the
milling complex will be situated in underground
excavations to take advantage of the rock
strength, reduce costs and improve efficiencies.
Tailings will be stored underground as cemented
paste backfill, eliminating the surface disturbance
associated with a conventional tailing storage
facility.
Noront Resources Ltd. – 2012 Annual Report – 7
The Project Description assumed access to the
site would be a combination of an all season
road and winter road. The all season road route
proposed follows the existing winter road corridor
from Pickle Lake to Webequie. The proposed
route for the all season road would establish
permanent road access to five First Nations
communities that are currently reliant on air
transportation for access.
The Company believes that the Project
Description presents a proposed mine
development plan that recognizes the
environmental sensitivity of the James Bay
wetlands by minimizing surface disturbance,
particularly within the wetland area.
The proposed development plan provides
significant social benefits to a number of First
Nations communities including road access,
potential long-term business opportunities
related to the operation of the diesel generating
plant and direct employment resulting from the
filtering and drying plant.
For greater detail, the reader can refer to the
Project Description document available on the
Company’s website.
While the Company was focused on advancing
the Eagle’s Nest deposit towards commercial
production, we also set a goal of increasing
the total mineral resource at Blackbird during
fiscal 2012. In December 2009, the Company
announced a total resource of 15.0 million tonnes
of chromite at Blackbird. This was the first
mineral resource estimate for chromite in the
Ring of Fire.
During the first half of fiscal 2012, drilling
was focused on increasing the total resource
and improving the geological confidence of the
Blackbird chromite deposit, as per the Company’s
goals and objectives. This drill program resulted
in close to a three fold resource increase as
reported in December 2011 and summarized in
the following table.
Blackbird Mineral Resource Estimate
December 31, 2011
Classification
Tonnes
(millions)
Measured
Indicated
Measured and
Indicated
Inferred
9.3
11.2
20.5
23.5
Cr203
(%)
37.44
34.36
35.76
33.14
Cr:Fe
Ratio
2.00
1.95
1.97
1.97
The drilling also highlighted the potential for
future resource growth but most importantly,
the results demonstrate that Blackbird is
equivalent to any other chromite discovery in
the Ring of Fire with the added advantages
that it is amenable to large scale underground
mining methods which dramatically limit the
environmental impact of chromite mining at
site. The Company believes Blackbird represents
an excellent opportunity to establish a chromite
mine and ferrochrome processing facility in
the future, once development of Eagle’s Nest is
completed.
The final objective for fiscal 2012 was the
testing for additional sources of nickel sulphide
mineralization through a carefully planned and
managed surface drill program.
Towards that end, the Company used deep
penetrating induced polarity surveys at Eagle’s
Nest to establish the geophysical signature of
Eagle’s Nest. Surface exploration grids at Eagle’s
Nest, Eagle Two and AT12 were cleared and
extended and the ground-based induced polarity
survey was extended to each area in sequence.
Results were analyzed and Company geologists
targeted what they interpreted to be buried nickel
sulphide targets in all three areas.
Noront Resources Ltd. – 2012 Annual Report – 8
Environmental Timeline
The Company’s objective is to have completed
all necessary baseline studies by the middle
of the 2012 calendar year. Completion of an
Environmental Assessment Report for the project
is targeted for the first half of fiscal 2012.
The Company is currently completing
Community Open Houses as part of the
permitting process.
Multiple targets were identified for drill testing
based on the strength of the geophysical response
and the fit of the target within the litho-structural
model of the Eagle’s Nest area. Drilling of these
targets in November and December 2011 led to
the discovery of two new zones of nickel sulphide
mineralization, located within 500 metres of the
Eagle’s Nest deposit. This suggested that the
new geophysical technique successfully identified
previously unrecognized nickel sulphide
mineralization.
In light of those results and of the successes of
the Insight IP survey, management decided to
expand the geophysical survey area to include the
Eagle Two (in the AT2 area) and AT12 targets.
Field work for the IP survey commenced in early
December and continued until early January
2012, and from that, multiple targets at AT12
and close to Eagle’s Nest (including the AT2/
Eagle Two area) were identified, and of which,
some were drill-tested in the third and fourth
quarters of fiscal 2012.
Drill results at AT2/Eagle Two identified
low-grade nickel sulphide mineralization, similar
to the zones discovered near the Eagle’s Nest
deposit in November and December 2011.
This provides further evidence that the
ground-based geophysical surveys deployed
by the Corporation have increased the ability
to detect buried mineralization, that of which
airborne geophysical surveys did not isolate.
The drilling at AT12 continued to intersect long,
down hole intervals averaging from 0.2% to 0.7%
Ni throughout an ultramafic intrusive unit that
measures approximately 200 metres in width and
has been traced over a strike length of 1,200 metres
to a depth of 600 metres. The ground-based
geophysical surveys helped to pinpoint areas of
higher mineralization within AT12.
Potential synergies with the mill complex being
considered to process the mineralization at
Eagle’s Nest may positively affect the ability to
process the mineralization at AT12.
Noront Resources Ltd. – 2012 Annual Report – 9
Community Engagement
Noront, as a company, recognizes the importance
of working closely with the communities that
will be impacted, or potentially impacted, by the
development of the Eagle’s Nest mine to create a
lasting and meaningful relationship for the benefit
of the Company and the communities.
Noront believes in the value of responsible
planning and action to ensure the work we do will
leave a minimal environmental and social impact
to the land and to the region.
Noront understands the importance of creating a
sustainable economy for the communities and the
people who live there. Providing opportunities
for training, jobs and business prospects promotes
long-term sustainable growth and development.
Noront’s success in engaging the community
partners begins with listening to the community
leaders and the members. Learning from the
issues that are raised by the communities we
respond to the comments in a meaningful and
thoughtful manner. We use this feedback, address
the concerns, building lasting and mutually
beneficial relationships with the community
partners.
Glenn Nolan
Vice President,
Aboriginal Affairs
The foundation of Noront’s community
engagement efforts can be summed
up in the following manner: Respect;
Relationship; Responsible; Sustainable.
Noront respects that communities have inherent
Treaty and Aboriginal rights. These rights
are entrenched in section 35 of the Canadian
Constitution.
Noront Resources Ltd. – 2012 Annual Report – 10
Activities:
•
•
Signed new agreements with communities
focused on working together in the
development of the Eagle’s Nest Project.
Provided financial support for various
community-based programs (health and
wellness; youth; social programs; fundraising
efforts; etc.).
• Conducted skills assessment with
communities to identify community
members interested in working with Noront.
Support youth-based educational programs
(DareArts; Mining Matters; Right to Play).
•
• Hosted eleven open house meetings in
eleven communities (eight First Nation
communities).
• Attended meetings with community leaders
from local communities.
• Worked with four communities on all season
road development concepts. Financially
supporting all season road corridor study in
partnership with communities.
• Work with federal and provincial
governments on identifying training funds
for skill development. Working with
community partners in development of
relevant training programs.
• Discussion with communities on business
opportunities related to the Eagle’s Nest
mine.
• Continued development and maintenance of
Mikawaa Community web portal.
• Hosting of Mikawaa Hour radio show.
•
Sought comments on Terms of Reference for
Environmental Assessment for the project.
• Advisory council with Aboriginal leaders in
business, mining and cultural protection.
A priority over the next few months will be the
work towards an Impact Benefit Agreements
(IBA) with the affected communities. The IBA
negotiations will set a clear plan for a working
relationship with the communities for the life of
the project.
Noront Resources Ltd. – 2012 Annual Report – 11
Questions & Answers
1
Why is Noront Resources a
good investment?
“We have world-class assets located in a politically
stable country with established mining regulations.
Our management team has vast experience in
advancing projects from exploration through
development and into production. We have attracted
major investments from experienced resource
investment funds and steel manufacturers with
long-term investment windows. The fundamentals
for both nickel and chromite remain strong as stainless
steel production continues to increase. It’s not so
much a question of if but when and the when will be
driven by the recovery in global financial markets.”
2
How will the environment be
affected by your project?
“We have always considered the environment in
all our plans. Eagle’s Nest will have the smallest
environmental footprint of any remote underground
mine in the world. By building the mill underground
and utilizing paste backfill technology to eliminate
the need for traditional surface tailings storage, we
have radically reduced the environmental footprint
of our mine and we will continue to identify other
opportunities to reduce our environmental impact
going forward.”
3
How is your relationship with the
First Nation Communities in the
Ring of Fire area?
“We are working hard to establish a relationship
of trust with the First Nation communities in the
Ring of Fire area. Building relationships takes
time and effort, by both parties. I believe we are
slowly establishing a relationship of trust with the
communities closest to the Ring of Fire and I look
forward to expanding that relationship to other
communities as we continue to advance our projects.”
4
What are the risks involved with
developing in the Ring of Fire?
“As with all mining projects there are multiple risks
involved in developing any mining venture. There are
technical risks, geo-political risks, social risks and
financial risks.
All risks are mitigated through knowledge
and experience, knowledge and experience our
management and consultants have developed
from long, successful careers in engineering,
building and operating mines around the world.
It is this knowledge and experience that allows a
comprehensive development plan to be established, a
plan that considers all eventualities.
Of course, there are always unforeseen events that
cannot be predicted or which may be unique to every
project. Again, the best means to limit the impact of
such events is a knowledgeable management team
with a common objective.”
5
Noront seems to be focused
on development. Is Noront no
longer an exploration company?
“Noront is entirely focused on developing Eagle’s Nest
as it should be. While additional sources of nickel,
chromite and other potential metals are undoubtedly
present in the Ring of Fire, the key to realizing the
true value of this unique mining camp is to establish
commercial production from one mine and utilize
profits from that mine to discover and develop other
mines in the future.
Noront has invested close to $150 million to date in
the Ring of Fire. That investment has identified two
world-class deposits, Eagle’s Nest and Blackbird.
To fund these discoveries, the Company issued close to
100 million shares.
While the Company has been successful in reducing
exploration costs from over $1,000 per metre in 2007
to roughly $500 per metre in the most recent drill
campaigns, exploration costs are high due to lack of
infrastructure.
Rather than continue to issue shares to engage in
costly and risky exploration, management believes
that long-term value is better served by issuing
share capital to fund construction of a mine,
establish commercial production and re-invest
cash flow to explore elsewhere in the Ring of Fire
from an established mining camp with sufficient
infrastructure. This would result in further reduction
to the cost of exploration that would result in
increased efficiency.”
6
How much focus are you going to
dedicate to exploring further in the
Ring of Fire?
“Our long-term goal is to establish commercial
production at Eagle’s Nest as quickly and efficiently as
possible. As such, 100% of our focus and effort will be
directed towards this goal.”
Noront Resources Ltd. – 2012 Annual Report – 12
7
What is Noront forecasting in the
next three to five years in terms of
investment return?
“The life cycle of mining projects is well understood.
It is common that the share price realizes considerable
appreciation shortly after a new mineral deposit is
discovered. That share price performance continues
to appreciate as new results confirming the size and
quality of the discovery are reported. Eventually this
leads to either a take over or a production decision.
The former provides shareholders with immediate
value appreciation. The latter often leads to a
significant decline in value as the engineering work
and studies necessary to build a mine are completed.
These studies take time, consume capital and there is
little excitement in the stock as the work proceeds.
Eventually the engineering work is complete, an
event typically marked by the release of a feasibility
study. Typically, the feasibility study represents a
turning point in the share price depreciation.
The feasibility study is used as a means to assemble a
financing package to build the mine. The announcement
that the financing plan has been completed is another
key milestone that adds value. Value for shareholders
continues to increase as the mine is being constructed,
eventually peaking once again when the mine is
operating at a consistent level.
If the mine is located in an underexplored area with
the potential to host additional discoveries, then the
value potential is greatly enhanced as profit from
the mine is re-invested into the area to discover
additional mineral wealth that will lead to mine
expansion and additional cashflow.
In the coming years, watch for a gradual increase in
value. Our target is to begin production in 2016 to
2017. That is when our shareholders will realize the
real value of our Eagle’s Nest discovery.”
8
What is management’s confidence
level in developing Eagle’s Nest?
“Eagle’s Nest is a world-class mineral deposit.
Many professionals spend their entire lives hoping for
an opportunity to design, build and operate a mine
backstopped by a world-class mineral discovery.
For some of us, this is likely the last opportunity we
will have in our careers to work on a project with the
potential to not just support a mine, but to support
the development of an entire mining camp. It is a
career opportunity and the fact that there is such little
turnover in our senior management demonstrates
that fact quite clearly.
Investment Risk and Project Value
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Stage of Project Development
Modified from B. Cook, 2011.
9
How are the Federal and Provincial
Governments going to contribute to
the development of the Ring of Fire?
“While we cannot speak to the plans of either the
federal or provincial governments, we believe that
it is likely that both levels of government will play
an active role in seeing the potential of the Ring
of Fire realized. This may take the form of direct
investment in infrastructure, training or education.
Government may choose to lead the engagement
process with affected First Nations communities and
the communities of northwestern Ontario.
There are multiple ways that both the federal and
provincial governments can assist in realizing the
economic benefits associated with the Ring of Fire.
It is our hope that both the federal and provincial
governments play an active role in the process,
serving as leaders and pushing the agenda as
opposed to sitting back and letting industry lead the
development.”
10
What is the main purpose
of Nickel?
“Nickel is primarily consumed in the production of
stainless steel and specialty alloys due to it’s physical
properties. Most of the world’s jet engines require
nickel and there is increasing demand originating
from the re-chargeable battery market.”
Noront Resources Ltd. – 2012 Annual Report – 13
For the year ended April 30, 2012
Table of Contents
Management’s Discussion and Analysis
Management’s Responsibility for Financial Reporting
Independent Auditors’ Report
Consolidated Statements of Financial Position
Consolidated Statements of Loss
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
15
34
35
36
37
37
38
39
40
Corporate Information
Inside Back Cover
Noront Resources Ltd. – Management’s Discussion and Analysis – 14
MANAGEMENT’S DISCUSSION AND ANALYSIS
(Expressed in Canadian Dollars)
Years ended April 30, 2012 and 2011
The following is Management’s Discussion and Analysis (“MD&A”) of the consolidated financial condition and results of operations of Noront
Resources Ltd. (“Noront” or the “Company”) for the year ended April 30, 2012, which have been prepared in accordance with International Financial
Reporting Standards. This discussion should be read in conjunction with the consolidated financial statements and the notes thereto for the same
period as noted above (collectively, the “Financial Statements”). Additional Company information, including the Company’s most recent Financial
Statements can be accessed through the System for Electronic Document Analysis and Retrieval (“SEDAR”) website at www.sedar.com and the
Company’s website at www.norontresources.com. Information contained on the Company’s website is not incorporated herein and does not form part
of this MD&A.
All financial measures are expressed in Canadian dollars unless otherwise indicated.
Wesley C. Hanson, President and Chief Executive Officer of Noront and a Qualified Person as defined by National Instrument 43-101 - Standards
of Disclosure for Mineral Projects (“NI 43-101”), has reviewed and is responsible for the technical information contained in this MD&A.
For further information on the McFaulds Lake Project, please refer to Noront’s NI 43-101 compliant technical reports entitled “Pre-Feasibility
Study, McFaulds Lake Property, Eagle’s Nest Project, James Bay Lowlands, Ontario”, dated October 6, 2011 (effective date of August 23, 2011)
(the “McFaulds Pre-Feasibility Study”), the “Technical Report on the Mineral Resources Estimate for the Blackbird Chrome Deposit, James Bay
Lowlands, Northern Ontario, Canada” dated January 22, 2010 (effective date of December 31, 2009) (the “Blackbird Technical Report”) the
“Technical Report on the Updated Mineral Resource Estimate for the Eagle’s Nest Property, McFaulds Lake Project, James Bay Lowlands, Ontario,
Canada” dated April 18, 2011 (effective date of March 4, 2011) (the “Eagle’s Nest Update Technical Report”) and the “Technical Report on the
Updated Mineral Resource Estimate for the Blackbird Chrome Deposits, McFaulds Lake Project, James Bay Lowlands, Ontario, Canada” dated
May 4, 2012 (effective date of December 31, 2011) (the “Blackbird Update Technical Report”) available on SEDAR and the Company’s website.
This information is current as of July 18, 2012.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This MD&A includes certain “forward-looking statements” within the meaning of applicable Canadian securities legislation. Forward-looking
information is provided as of the date of this MD&A or, in the case of documents incorporated by reference herein, as of the date of such
documents.
Generally, forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does
not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or
variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”,
“occur” or “be achieved”. Examples of such forward-looking statements include statements regarding financial results and expectations
for fiscal year 2012, such as, but not limited to, availability of financing, interpretation of drill results, the geology, grade and continuity
of mineral deposits and conclusions of economic evaluations, metal prices, demand for metals, currency exchange rates, cash operating
margins, expenditures on property, plant and equipment, increases and decreases in exploration activity, changes in project parameters, joint
venture operations, resources and anticipated grades and recovery rates and are or may be based on assumptions and/or estimates related to
future economic, market and other factors and conditions. All statements, other than statements of historical facts, included in this MD&A
that address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such
things as future business strategy, competitive strengths, goals, expansion and growth of the Company’s businesses, operations, plans and
other such matters are forward-looking statements.
Forward-looking information is based on reasonable assumptions that have been made by the Company as at the date of such information
and is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance
or achievements of the Company to be materially different from those expressed or implied by such forward-looking information, including
but not limited to: the impact of general business and economic conditions; risks related to government and environmental regulation,
actual results of current exploration activities, conclusions of economic evaluations and changes in project parameters as plans continue to be
refined; problems inherent to the marketability of base and precious metals; industry conditions, including fluctuations in the price of base
and precious metals, fluctuations in interest rates; government entities interpreting existing tax legislation or enacting new tax legislation
Noront Resources Ltd. – Management’s Discussion and Analysis – 15
in a way which adversely affects the Company; stock market volatility; competition; risk factors disclosed on pages 26-30 herein under the
heading “Risk Factors”; risk factors disclosed under the heading “Risk Factors” in the Company’s most recent Annual Information Form
(“AIF”) dated July 28, 2011 on pages 36-40, available electronically on SEDAR; and such other factors described or referred to elsewhere
herein, including unanticipated and/or unusual events. Many of such factors are beyond Noront’s ability to control or predict.
Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other
factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be
accurate as actual results and future events could differ materially from those reliant on forward-looking statements.
All of the forward-looking statements made in this MD&A are qualified by these cautionary statements and readers of this MD&A
are cautioned not to put undue reliance on forward-looking statements due to their inherent uncertainty. Noront disclaims any intent
or obligation to update any forward-looking statements, whether as a result of new information, future events or results or otherwise,
except as required by law. These forward-looking statements should not be relied upon as representing the Company’s views as of any date
subsequent to the date of this MD&A.
NOTE TO U.S. INVESTORS REGARDING RESOURCE ESTIMATES
All resource estimates contained in this MD&A have been prepared in accordance with National Instrument 43-101 and the Canadian
Institute of Mining, Metallurgy and Petroleum Classification System in compliance with Canadian securities laws, which differ from the
requirements of United States securities laws. Without limiting the foregoing, this report uses the terms “measured resources”, “indicated
resources” and “inferred resources”. Any U.S. Investors are advised that, while such terms are recognized and required by Canadian
securities laws, the U.S. Securities and Exchange Commission (“SEC”) does not recognize them. Under U.S. standards, mineralization may
not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced
or extracted at the time the reserve determination is made. Any U.S. investors are cautioned not to assume that all or any part of measured
or indicated resources will ever be converted into reserves. Further, inferred resources have a great amount of uncertainty as to their
existence and as to whether they can be mined legally or economically. It cannot be assumed that all or any part of the inferred resources
will ever be upgraded to a higher category. Any U.S. investors are cautioned not to assume that all or any part of the inferred resources
exists, or that they can be mined legally or economically. Information concerning descriptions of mineralization and resources contained in
this report may not be comparable to information made public by U.S. companies subject to the reporting and disclosure requirements of
the SEC.
COMPANY OVERVIEW
Noront is engaged in the development, exploration and acquisition of properties prospective in base and precious metals, including: nickel,
copper, platinum group elements (“PGE’s”), chromite, iron, titanium, vanadium, gold and silver. The Company is currently focused on
the development and exploration of its properties at McFaulds Lake (the “McFaulds Lake Project”), in the James Bay Lowlands, Ontario
within a geological feature (intrusion) commonly referred to as the “Ring of Fire”. The Company owns a 100% interest in a development
stage nickel-copper-platinum group elements project known as “Eagle’s Nest”, a development stage chromite project known as “Blackbird”;
two nickel-copper-platinum group metal discoveries known as “Eagle Two”; “AT-12”; an iron-vanadium-titanium discovery known as
“Thunderbird”; and a zone of gold mineralization known as the “Triple J Gold Zone”.
Noront controls and has 100% mineral rights ownership of 427 claims of approximately 95,376 hectares (235,679 acres) in the Ring of Fire
area, making Noront the largest claim holder in the region.
OBJECTIVES
The Company’s objectives for fiscal 2013 include:
•
•
the continued development of our flagship Eagle’s Nest (nickel, copper, platinum, and palladium) Project with the objective of
establishing commercial production in and around 2016; and
the continued evaluation of the Blackbird chromite project to establish the economic value and a strategy for future development.
Noront Resources Ltd. – Management’s Discussion and Analysis – 16
STRATEGY
Eagle’s Nest (nickel, copper, platinum, and palladium) Project
The Company released the results of its pre-feasibility study on August 23, 2011 and based on the positive results of this study, the
Company initiated work on a full feasibility study. The feasibility study was planned for completion and release by the second quarter of
calendar 2012. The geographic scope of the feasibility study was based on an area identified by an access route connecting highway 808
north of Pickle Lake, Ontario to a point just south of the First Nation Community of Webequie and then continued east to the Eagle’s
Nest mine site (the “East-West Route”).
On May 9th, 2012 the Government of Ontario, through joint public statements with Cliffs Natural Resources indicated provincial support
for a different access route to the Ring of Fire. The proposed route runs north to south from a point north of Nakina, Ontario directly to
the “Ring of Fire” (the “North-South Route”). As a result of this announcement, the Company has delayed the release of its feasibility
study until the Company has evaluated the impact of the North-South Route.
The Company continues to meet with the Government of Ontario regarding the North-South route. During the first half of fiscal 2013
(“H1 2013”) the Company plans to work with the Government of Ontario, other industry partners, regional stakeholders, First Nations
and the local communities of northwestern Ontario to reach agreement on stakeholder contributions and timelines for the financing and
construction of the proposed North-South Route.
Aside from the above access route consideration, all the technical work on the feasibility study is complete and as such, the Company plans
to commence the pre-development activity necessary to meet its planned production date in and around 2016, provided permitting and
financing can be obtained. The Company is currently developing detailed capital expenditure plans, starting detailed project engineering,
sourcing long lead equipment, preparing contracts for the underground and surface construction and preparing to mobilize equipment to
the site utilizing an upgraded winter road along the East-West Route. The Company will be applying to the Government of Ontario for an
advanced exploration permit to allow for the construction of a surface portal and an exploration decline that will be used to:
•
•
•
collect a bulk sample for additional metallurgical testing;
provide a platform for underground diamond drilling to increase the mineral reserves; and
provide a source of aggregate material for surface site construction.
The Eagle’s Nest environmental assessment is planned for completion in H1 2013. The Company continues to meet with local
communities regarding the environmental assessment including the potential impact on traditional lands and practices. The environmental
assessment will include socio-economic aspects of the Eagle’s Nest Project and is intended to work towards negotiating impact benefit
agreements with stakeholders.
The Company is also working with local communities to identify business and employment opportunities.
The Company has engaged a financial advisor to assist with evaluating financing options for the Eagle’s Nest Project. All financing options
are currently being evaluated including joint venture arrangements with strategic partners as well as financing the Eagle’s Nest Project
independently.
Blackbird Chromite Project
The Company is focused on developing its most advanced project, the Eagle’s Nest Mine. The Company’s longer term plan has always
been to start development and production from the Blackbird chromite deposits once production commences at Eagle’s Nest. However,
the Company is currently evaluating the economics of the Blackbird Chromite Project based on the substantially larger resource estimate
released during fiscal 2012 as a result of the positive drill program in the first half of the fiscal year, and actively seeking opportunities to
bring forward its planned production date.
Exploration
Exploration drilling has been suspended for the summer as drilling efforts will be focused on the engineering necessary to evaluate areas
for site construction. During H1 2013, drilling will be focused on collecting engineering data (rock mass characterization, hydrogeology,
condemnation drilling) in areas where the surface and underground infrastructure are planned to be located.
Noront Resources Ltd. – Management’s Discussion and Analysis – 17
The Company is updating its geological model based on previous geophysics and drilling data. Company geologists will identify areas for
exploration drilling based on the updated model and the Company may initiate limited exploration in the second half of 2012 (“H2 2013”)
to test select targets identified as part of the modeling process.
Once the Eagle’s Nest Mine and Mill complex is operational, the Company believes the mineralized zones proximal to Eagle’s Nest and
AT-12 have the potential to be economic and will supplement the mill feed increasing concentrate production.
CORPORATE AND OPERATIONS REVIEW
Corporate
During the first quarter of fiscal 2012, Baosteel Resources International Co., Ltd. (“Baosteel”) acquired a 9.9% ownership interest in the
Company through a private placement offering. In October 2011 the Company was pleased to announce that Mr. Lin Li, Vice President
Finance with Baosteel was elected to the board of directors of Noront (the “Board of Directors”). Baosteel is a significant stainless steel
producer in China, a natural customer for the Eagle’s Nest mine production and the Baosteel Group is ranked 212 among the Fortune 500
Companies.
The Company was also pleased to announce, in October 2011, the election of Mr. Paul Parisotto as Chairman of the Board of Directors
and Mr. Ted Bassett to the Board of Directors. Mr. Bassett is a Professional Engineer with over 40 years of experience in mine engineering
and project management. Most recently, Mr. Bassett was the Project Director, Jansen Potash Project, BHP Billiton. Mr. Bassett has a
successful track record in the supervision and construction of large capital projects including: The Olympic Dam Expansion Project,
The Goro Nickel Project, the Voisey’s Bay Nickel Project and the Diavik Diamond Mine.
On March 23, 2012, Resource Capital Fund V L.P. (“RCF”), declared that it had acquired a 10.11% interest in Noront through
accumulation of Noront’s free trading shares on the open market. At that time, RCF expressed an interest in increasing its interest in
Noront through future private placements.
Subsequent to the fiscal year end, RCF increased its position in Noront to 18.19% as a result of a non-brokered private placement with
gross aggregate proceeds of $10 million. In a subsequent transaction Baosteel exercised its anti-dilution rights pursuant to its previous
subscription agreement to maintain its 9.9% interest, with aggregate gross proceeds to the Company of approximately $1.3 million.
In conjunction with the closing of RCFs private placement, Mr. David Thomas, P.Geo, Managing Director of RCF Canada joined the
Company’s board of directors. Mr. Thomas is a professional geologist, a graduate with a BSc Geology from the University of Waterloo and
a MSc Geology from Queens University. Mr. Thomas worked as an exploration geologist for eight years with Minnova Inc. and Metall
Mining. Prior to joining RCF in 2010, Mr. Thomas spent fifteen years as a mining analyst and equity salesperson.
Operations
McFaulds Lake Project
The Company established the following goals at the beginning of fiscal 2012:
Eagle’s Nest
•
complete a pre-feasibility study on the Eagle’s Nest deposit and target completion of a full feasibility study on the Eagle’s Nest
complex in the 2nd quarter of calendar 2012;
continue to engage stakeholders on options for infrastructure development and funding; and
continue to engage First Nations communities and identify business and employment opportunities.
•
•
Blackbird
•
complete exploration drilling on the Blackbird chromite deposits to increase the size and confidence of the resource.
Exploration
•
continue to evaluate and test the exploration potential to increase the nickel, copper, platinum and palladium resources around
Eagle’s Nest and regionally in the Ring of Fire.
Noront Resources Ltd. – Management’s Discussion and Analysis – 18
Eagle’s Nest Project
During the second quarter of fiscal 2012, the Company released the results of a NI 43-101 compliant pre-feasibility study 1 (“PFS”) for a
stand-alone nickel, copper, platinum group element (“Ni-Cu-PGE”) mine and mill complex exploiting the Company’s 100% owned Eagle’s
Nest Project. The results of the independent study supervised by Micon International, concluded that the previously defined Eagle’s Nest
mineral resource is economic and can be classified as a Mineral Reserve. The reserves, as reported in the 43-101 compliant McFaulds
Pre-Feasibility Study, are as follows:
Reserves
Proven
Probable
Total Reserves
Ore
Ni
tonnes (000’s) %
5,264
5,867
11,131
2.02
1.38
1.68
Cu
%
1.04
0.72
0.87
Pt
g/t
1.01
0.78
0.89
Pd
g/t
3.45
2.76
3.09
Au
g/t
0.19
0.18
0.18
Inferred Resources
8,966
1.10
1.14
1.16
3.49
0.30
At the time of the technical report August 23, 2011, Micon is not aware of any environmental, permitting, legal, title, taxation, socio-economic,
marketing or political issues which would adversely affect the mineral reserve estimated above. However, there is no assurance that Noront will be successful
in obtaining any or all of the requisite consents, permits or approvals, regulatory or otherwise, for the project. As regards the reserve parameters, higher
mining dilutions, poor metallurgical recoveries and low metal prices could individually and/or collectively impact negatively on the reserve estimates.
The quantity and grade of reported inferred resources in this estimation are conceptual in nature and there has been insufficient exploration to define
these inferred resources as an indicated or measured mineral resource and it is uncertain if further exploration will result in upgrading them to an
indicated or measured mineral resource category.
The PFS project economics released on August 23, 2011, based on the Assumed Metal Prices 2 are:
(Cdn)
NPV at 6% Discount (after tax)
IRR (after tax)
Initial Capital
LOM Sustaining Capital
Operating Costs
Free Cash Flow (annual)
Mine Life
Capital Payback
$560 million
20%
$734 million
$143 million
$75 - $80 per tonne
$175 million
11 years
3 years
During the year, the Company announced that it released the Notice of Commencement of Terms of Reference for the Eagle’s Nest
Project. Draft Terms of Reference for the project have been prepared by the Company in compliance with Ontario Ministry of the
Environment (“MOE”) requirements. The Canadian Environmental Assessment Agency (“CEAA”) recommended a Comprehensive
Review Process for the Eagle’s Nest Project. Draft Terms of Reference and a Draft Environmental Impact Statement Guidelines have been
made available for public comment at www.ceaa.gc.ca.
The Company is currently evaluating the impact of a recent announcement by the Government of Ontario supporting infrastructure into
the “Ring of Fire”, specially the proposed North-South Route. As a result, the Company decided to delay the release of its Feasibility Study
for its Eagle’s Nest Project until the impact of the announcement can be assessed. The Company has held meetings with the Government
of Ontario and the relevant provincial agencies since the province’s announcement. Over the next few months, the Company will meet
with the Government, mining companies, communities and other users to come to an agreement on relative contributions for shared access
infrastructure.
1 The PFS was completed by Micon and included technical input from SNC Lavalin, Cementation Ltd., Knight Piesold, Penguin ASI and Golder
Associates. The PFS was based on the proposed mining and processing of the Eagle’s Nest resource previously defined by Micon in the McFaulds
Technical Report. For further information on Eagle’s Nest, please refer to the McFaulds Technical Report which is available on the Company’s website
and SEDAR.
2 Nickel US$8.62 per pound, Copper US$3.08 per pound, Platinum US$446 per ounce, Gold US$1,130 per ounce.
Noront Resources Ltd. – Management’s Discussion and Analysis – 19
The Company continues to host open houses with the local communities in northwestern Ontario potentially impacted by the mine
development to present the Company’s project development. Attendance has been robust and Noront’s staff and consultants have actively
engaged with the communities visited to date.
Blackbird
The Company’s objective at the high grade Blackbird chromite deposit was to double the resource defined in the Blackbird Technical
Report through surface drill testing of the deposit along strike and at depth.
Drilling at Blackbird exceeded management’s expectations, resulting in a tripling of the previous resource estimate at Blackbird.
An updated, independent mineral resource estimate for the Blackbird deposit was completed by Micon International Ltd. (“Micon”),
an independent consulting engineering company.
The 43-101 compliant mineral resource estimate from the Blackbird Update Technical Report is as below:
Resource Category
Measured
Indicated
Total Measured and Indicated
Inferred
Tonnes (000’s)
9,300
11,200
20,500
23,500
Avg. Cr2O3 %
37.44
34.36
35.76
33.14
Cr:Fe
2.00
1.95
1.97
1.97
Mineral resources which are not mineral reserves do not have demonstrated economic viability. The estimate of mineral resources may be materially
affected by environmental, permitting, legal, title, taxation, socio-political, marketing, or other relevant issues.
The quantity and grade of reported inferred resources in this estimation are conceptual in nature and there has been insufficient exploration to define
these inferred resources as an indicated or measured mineral resource and it is uncertain if further exploration will result in upgrading them to an
indicated or measured mineral resource category.
The Company is completing an internal evaluation of a northwest Ontario based mine, mill and smelter facility capable of producing
between 200,000 and 250,000 tonnes of high quality ferrochrome annually.
Regional Exploration
Proximal to Eagle’s Nest Complex
The Company initiated ground-based geophysical surveys near the Eagle’s Nest deposit in October 2011. The survey established the
geophysical signature of the Eagle’s Nest deposit, which was used to evaluate the area around the deposit for potential nickel sulphide
targets. Multiple targets were identified. All of the targets identified were buried targets, within two to three hundred metres from surface.
Three of the buried targets were selected for drill testing based on the strength of the geophysical response and the fit of the target within
the litho-structural model of the Eagle’s Nest area.
Drilling was completed in early December 2011 and visual observation of the core indicated that two of the three holes had intersected
nickel sulphide mineralization, suggesting the new geophysics successfully identified previously unrecognized nickel sulphide
mineralization. The Company’s geologists and geophysical advisors believe the new geophysical survey accurately identifies buried nickel
sulphide mineralization that airborne surveys of the camp could not detect.
In January 2012, analytical results from the three-hole drill program were received and their results confirmed the presence of nickel
sulphide mineralization. Hole NOT-11-1G243 intersected over 37 metres of low-grade nickel sulphide mineralization, 250 metres south of
the Eagle’s Nest deposit, at a depth of approximately 250 metres from surface. Individual samples within this interval returned much higher
nickel, platinum and palladium grades over smaller intervals. Hole NOT-11-1G244 intersected 1.0% nickel over an approximate 3.0 metre
core interval on a separate zone 250 metres south of the mineralization intersected in Hole NOT-11-1G243.
Eagle Two (AT-2) and AT-12 area
Management expanded the geophysical survey from the region proximal to the Eagle’s Nest Complex to include the Eagle Two and AT-12
targets. Field work commenced in early December 2011 and continued until early January 2012. Processing of the geophysical data
identified multiple targets at AT-12 and additional targets close to Eagle Two. During the period from February to March 2012 several
targets were drill tested and a total of 2,346 metres were drilled.
Noront Resources Ltd. – Management’s Discussion and Analysis – 20
Three holes at AT-2 tested buried targets which were identified 150 to 350 metres below surface and 150 to 200 metres east of the
previously identified nickel sulphide mineralization at Eagle Two. Three holes were also drilled at AT-12 testing a buried target which was
identified 100 to 200 metres below surface.
All six holes intersected low-grade nickel sulphide mineralization, confirming that the ground based geophysical surveys may be a valuable
tool in identifying additional sources of buried nickel sulphide mineralization elsewhere in the camp.
Joint Ventures
Golden Valley
Golden Valley is a joint venture located in the northern portion of the Ring of Fire and operated by White Pine Resources Ltd. (“White
Pine”). The initial drill program to assess geophysical targets north of Oval Lake commenced during fiscal 2009. The large property
surrounds a copper-zinc discovery by Metalex Ventures Ltd.; a total of fourteen holes were completed at the joint venture in fiscal 2009 and
12 holes were drilled in fiscal 2010 yielding copper-zinc-silver anomalies. As per the terms of an option agreement dated August 19, 2008,
White Pine and the Company are earning a 35% interest each in the property from Golden Valley Minerals Ltd.
Garden Island, Quebec
The Company has a 50% interest in the Garden Island property comprised of 568 mining claims totaling 23,763 hectares, most of which
are in Pascalis, Manneville and Senneville townships, which lie along a northwest-southwest trending Abitibi volcanic greenstone belt.
The operator, TSR Resources is expected to submit a further exploration program in fiscal 2013.
Windfall Lake
On July 20, 2009, the Company, entered into a property option agreement (the “Agreement”) with Eagle Hill Exploration (“Eagle Hill”)
pursuant to which Eagle Hill as of April 20, 2012 has earned a 75% interest in the Windfall Lake Property (the “Property”).
The Company retains a 25% carried interest up until the earlier of completion of a bankable feasibility study (the “BFS”) or Eagle Hill gives
notice of its commitment to cause the commencement of commercial production from the Property with such notice specifying the tons of
proven and probable reserves and the anticipated annual rate of production; after which the Company will have the option to convert all of
its interest to a 2% net smelter royalty or retain its 25% interest in the property and be responsible for its working interest of development
expenditures. At the Company’s option, the Company may require Eagle Hill to fund its share of development expenditures with such
advance to accrue interest at 10% per annum and be paid back through the assignment of its share of income from the Property.
If Eagle Hill does not complete a BFS or commit to cause the commencement of commercial production, from one year from the date of
earning its 75% interest being April 20, 2013, then the Company will have the option to purchase back Eagle Hill’s interest in the Property,
for the lesser of i) an amount equal to the expenses incurred by Eagle Hill and ii) $6 million.
SELECTED ANNUAL FINANCIAL INFORMATION
The following financial data are derived from the Company’s financial statements for the fiscal years ending April 30, 2012, 2011 and 2010:
(expressed in $ thousands except per share amounts)
Exploration expenditures and mining studies
Office and general
Amortization
Share-based compensation
Interest income
Gain (loss) on sale of marketable securities
Net loss
Net loss per share – basic and diluted (1)
Cash flow used in operations
Cash and cash equivalents
Working Capital
2012
21,852
4,744
408
2,257
158
13
(28,752)
(0.14)
(24,256)
5,067
3,849
Canadian GAAP
2010
9,815
5,889
163
3,764
173
418
(10,351)
(0.06)
(4,991)
21,125
23,676
2011
31,133
5,485
415
2,031
182
255
(35,869)
(0.20)
(35,066)
8,889
9,727
(1) Fully diluted weighted average common shares outstanding, used in the calculation of fully dilutive net loss per share, are not reflective of the
outstanding stock options and warrants at that time as their exercise would be anti-dilutive in the net loss per share calculation.
Noront Resources Ltd. – Management’s Discussion and Analysis – 21
Year Ended April 30, 2012 Compared to Year Ended April 30, 2011
Exploration Expenditures and Mining Studies
(expressed in $ thousands)
Eagles’ Nest
Technical Studies
Environmental Studies and Consultation
Drilling and Camp Costs
Geophysics
Blackbird
Drilling and Camp Costs
Geophysics
Regional
Drilling and Camp Costs
Geophysics
Other
Total
April 30
2012
April 30
2011
$ 3,514
3,475
-
-
6,989
$ 4,459
1,711
9,629
56
15,855
8,267
30
8,297
78
-
78
5,444
832
6,276
290
$ 21,852
13,289
944
14,233
967
$ 31,133
In the current fiscal year, technical studies consist of expenses related to the completion of the Company’s feasibility study. The amount
spent in the prior fiscal year for technical studies was in support of the Company’s pre-feasibility study. In the current fiscal year, $3.5
million was spent compared to $4.5 million in the prior year.
Environmental studies and consultation also consist of certain expenses related to the feasibility and pre-feasibility studies. The increase
from the prior year to $3.5 million from $1.7 million is due to the increase in environmental requirements and community consultation for
the Company’s environmental assessment application.
From May 1, 2011 to April 30, 2012, $13.7 million was spent on exploration and resource definition drilling in the Ring of Fire and a
total of 29,251 metres were drilled, compared to $23.0 million spent on drilling 41,209 metres in the prior fiscal year. Drilling costs were
reduced by approximately $90 per metre from the prior fiscal period as a result of drilling plans which reduced required helicopter time and
increased drilling productivity.
From May 1, 2011 to April 30, 2012, $0.9 million was spent on a ground based geophysical survey which identified two new zones of
nickel sulphide mineralization, within 500 metres of Eagle’s Nest. Management decided to expand the survey area to include the Eagle Two
and AT-12 areas and raised additional flow-through funds to drill test the resulting targets during the fourth quarter of fiscal 2012.
The current fiscal year drilling program at Blackbird was focused on increasing the size and confidence of the chromite deposit and the
regional exploration drill program tested high priority geophysical targets proximal to Eagle’s Nest, Eagle 2 and AT-12. The prior year drill
program focused on increasing the resource confidence of the Eagle’s Nest Deposit and on testing high priority exploration targets.
Office and General
(expressed in $ thousands)
Office and general
Professional fees
Communications and travel
2012
3,279
678
787
$ 4,744
Canadian GAAP
2011
3,413
785
1,287
$ 5,485
Office and general expenses are consistent with prior year’s expenses. Professional fees decreased by $0.1 million due to a lower number
of consultants being engaged. Communications and travel expenses decreased by $0.5 million as a result of a decrease in attendance at
conferences.
The Company had no write-downs of mineral properties or marketable securities during the year.
Noront Resources Ltd. – Management’s Discussion and Analysis – 22
Income
Income is comprised of interest earned on deposits. The Company earned $0.2 million in interest income during the fiscal year compared
to $0.2 million in interest income during the prior fiscal year.
SUMMARY OF CASH FLOWS
(expressed in $ thousands)
Cash provided by (used in) operating activities
Cash provided by (used in) investing activities
Cash provided by (used in) financing activities
2012
(24,256)
(84)
20,518
(3,822)
2011
(35,066)
(53)
22,883
(12,236)
Operating Activities
For the year ended April 30, 2012, the Company had a cash outflow from operations of $24.3 million compared to a cash outflow of $35.1
million in the prior year. The majority of the decrease in cash outflow is a result of a lesser number of drills being on site compared to the
prior fiscal year.
Investing Activities
For the year ended April 30, 2012, the Company had immaterial cash outflows from investing activities. In the current fiscal year there were
land acquisition and equipment acquisitions totaling $0.08 million. In the prior fiscal year, the equipment purchases of $0.9 million were
offset by the proceeds from disposal of securities of $0.9 million.
Financing Activities
For the year ended April 30, 2012, cash provided from financings was $20.5 million compared to $22.9 million in the prior year comparable
period. The cash provided from financings is a result of raising net proceeds of $17.2 million in June 2011 as a result of an investment
by Baosteel and net proceeds of $3.2 million as a result of the December 2011 brokered offering of 4,073,800 flow-through shares with
aggregate gross proceeds of $3.5 million. The cash provided from financings is net of the cost of issuance. In the prior year, the cash
provided from financing was a result of raising net proceeds of $9.5 million in a flow-through equity financing completed in November
2010 and net proceeds of $13.0 million from a flow-through equity financing completed in May 2010. The cash provided from these
financings is net of the cost of issuance.
SUMMARY OF QUARTERLY RESULTS AND FOURTH QUARTER REVIEW
The following information is derived from the Company’s quarterly consolidated financial statements for the past eight quarters:
2012
Q2
IFRS
8,168
53
2012
Q1
IFRS
7,772
51
2012
Q3
IFRS
6,619
31
(expressed in $ thousands except per share amounts) 2012
Q4
IFRS
6,700
23
13
-
-
(6,502)
(0.03)
5,067
3,849
Unaudited
Expenses
Interest Income
Gain on sale of marketable securities
Severence
Acquisition costs
Net loss
Net loss per share – basic and diluted (1)
Cash and cash equivalents
Working Capital
Assets
Long-term Liabilities
2011
Q1
IFRS
12,107 12,750
46
-
-
31
59
-
-
(6,155) (13,042) (11,656)
(8,254)
(0.04)
(0.07)
(0.06)
(0.03)
8,889 16,428 15,240 24,816
9,727 16,680 13,383 23,464
10,201 16,396 19,389 26,192 16,390 24,542 23,698 33,804
212
-
-
-
(7,627)
(0.04)
19,145
9,887 12,657 20,029
-
-
8
(8,115)
(0.04)
11,781 12,916
-
7
-
(6,508)
(0.03)
2011
Q3
IFRS
6,622
51
2011
Q4
IFRS
7,341
33
52
-
75
-
2011
Q2
IFRS
-
-
-
705
136
138
213
214
141
141
(1) Fully diluted weighted average common shares outstanding, used in the calculation of fully dilutive net loss per share, are not reflective of the
outstanding stock options and warrants at that time as their exercise would be anti-dilutive in the net loss per share calculation.
Noront Resources Ltd. – Management’s Discussion and Analysis – 23
Interest income varies quarterly based on the average cash balance on hand over the quarter and the corresponding yield earned on the
Company’s deposits. The quarterly variation in expenses is mainly attributable to timing of exploration drill programs and mining studies
and stock option expense which is recognized at the time of grant in accordance with the vesting.
Three Months Ended April 30, 2012 compared to Three Months Ended April 30, 2011
For the quarter ended April 30, 2012, the total expenses were $6.7 million compared to $7.3 million in the prior year comparable period.
The decrease is due to a two month winter exploration program compared to a three month program in the prior year comparable period,
which was partially offset by an increase in expenditure on mining studies. Corporate costs were comparable to the prior year period.
For the three months ended April 30, 2012, the Company earned $0.02 million in interest income from deposits compared to $0.03 million
in interest income for the prior year comparable quarter. Interest income earned in the current and comparable quarter consists of interest
earned on bank balances.
LIQUIDITY AND CAPITAL RESOURCES
As at April 30, 2012, the Company had working capital of $3.8 million and a cash position (cash and cash equivalents) of $5.1 million
compared to $9.7 million and $8.9 million respectively as at April 30, 2011.
On June 2, 2011, the Company completed a private placement with Baosteel for gross proceeds of $17.4 million. Baosteel acquired
20,234,967 units of Noront (“Units”) at a price of $0.86 per Unit. Each Unit consisted of one common share and one half of one common
share purchase warrant (each whole warrant a “Warrant”). Each Warrant entitles Baosteel to acquire one common share of Noront at an
exercise price equal to $1.16 on or before June 2, 2013. Baosteel received the right to nominate one individual to the Noront Board of
Directors, a right to increase its ownership in Noront to 19.9% such right existing for a one year period commencing on May 2, 2012 and
a standstill provision which expires on May 2, 2013. Baosteel was also granted a 90-day exclusivity period to negotiate a direct property
interest and/or off-take agreement with respect to any of Noront’s properties with such exclusivity period to commence any time prior to
production at the Company’s discretion.
On December 20, 2011, the Company completed a private placement financing for gross proceeds of $3.5 million by issuing 4,073,800
flow-through common shares (the “Flow-Through Shares”) at a price of $0.86 per Flow-Through Share. In connection with said offering,
the agents received a cash commission equal to 5% of the gross proceeds raised under the offering.
Funds raised were used for exploration and resource definition drilling, for pre-feasibility and feasibility study work on the Company’s
Eagle’s Nest deposit, and for general corporate purposes. Surplus funds are invested in a blend of high interest savings accounts in order to
provide liquidity while minimizing risk.
On May 10, 2012, the Company completed a private placement with Resource Capital Fund V L.P. (“RCF”), pursuant to which RCF
subscribed for 19,230,769 common shares in the capital of the Company (the “Common Shares”) at a purchase price of $0.52 per Common
Share, representing gross proceeds to the Company of approximately $10 million.
On May 25, 2012, the Company completed a private placement with Baosteel Resources International Co. Ltd. (“Baosteel”), pursuant to
which Baosteel has exercised its right to maintain its 9.9% interest in the Company. Baosteel acquired an additional 2,566,151 Common
Shares at a purchase price of $0.52, representing gross proceeds to the Company of approximately $1.33 million.
Noront has no credit facilities with financial institutions, so its financial instruments consist of cash, marketable securities, duties and tax
receivable and accounts payable and accrued liabilities. Unless otherwise noted, the Company does not expect to be exposed to significant
interest, currency or credit risks arising from these financial instruments. Noront estimates that the fair value of cash and cash equivalents,
duties and tax receivable, accounts payable and taxes payable approximate the carrying values.
The Company will need to raise sufficient capital to further explore and develop its properties and projects beyond fiscal 2013. The timing
and ability to do so will depend on, among others, the status of the financial markets as well as the acceptance of investors to finance
resource based junior companies, in addition to the results of the Company’s exploration programs and development activities and the
acquisition of additional projects. At this time, the Company will rely on its ability to obtain equity or debt financing for the foreseeable
future.
Noront Resources Ltd. – Management’s Discussion and Analysis – 24
CONTRACTUAL OBLIGATIONS AND CONTINGENCIES
The contractual obligations for the ensuing five-year period can be summarized as follows:
(expressed in $ thousands)
Contractual Obligations
Operating Leases
Other Long-Term Obligations
Total Contractual Obligations
Total
170
1,225
1,395
Less than
1 year
162
516
678
1 -3 years
8
42
50
4 - 5 years
-
27
27
After
5 years
-
640
640
Operating lease obligations represent future minimum annual rentals under non-cancellable operating leases for Noront office space,
vehicles and equipment.
Other Long-Term Obligations represent commitments related to a demobilization plan re-assessed by management as at April 30, 2012 for
the McFaulds Lake Project and a site remediation plan established in accordance with the requirements of the Quebec Ministry of Natural
Resources for Windfall Lake.
Subsequent to the year end, the Company received a Notice of Assessment from the Government of Quebec relating to their audit of the
Quebec income tax returns for the 2008 and 2009 fiscal year ends. Per the assessment, the Company is required to remit taxes totaling
$895,748 relating to tax credits for exploration expenditures which were previously refunded by the Government of Quebec. The Company
has filed a Notice of Objection related to the assessment. The Company has reviewed the expenditures with its tax advisor and has included
a provision of approximately $250,000 in the current financial statements which represents management’s estimate of the obligation.
RELATED PARTY AND OTHER TRANSACTIONS
During the year ended April 30, 2012, the Company engaged Penguin Automated Systems (“Penguin”) after completing an independent
tendering process; under the direction of Micon International, lead consultant for certain technical studies. The Company’s Chief
Operating Officer has a 38.5% ownership interest in Penguin. Professional fees paid to Penguin for the year ended April 30, 2012, were
$1,098,239 (year ended April 30, 2011 - $783,965) and the amount payable to Penguin as at April 30, 2012 is $392,292 (April 30, 2011 -
$157,917; May 1, 2010 - $NIL).
The above noted transactions are in the normal course of business and are measured at the exchange amount, as agreed to by the parties,
and approved by the Board of Directors in strict adherence to conflict of interest laws and regulations.
DISCLOSURE CONTROLS AND PROCEDURES
Management has established processes, which are in place to provide them with sufficient knowledge to support management
representations that they have exercised reasonable diligence that:
(i)
the audited annual financial statements do not contain any untrue statement of material fact or omit to state a material fact required to
be stated or that is necessary to make a statement not misleading in light of the circumstances under which it is made, as of the date of
and for the periods presented by the audited annual financial statements; and
(ii) the audited annual financial statements fairly present in all material respects the financial condition, results of operations and cash
flows of the Company, as of the date of and for the periods presented by the audited annual financial statements.
In contrast to the certificate required of non-venture issuers under National Instrument 52-109, Certification of Disclosure in Issuers’
Annual and Interim Filings (NI 52-109), the Company utilizes the Venture Issuer Basic Certificate which does not include representations
relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting
(ICFR), as defined in NI 52-109. In particular, the certifying officers filing the Certificate are not making any representations relating to
the establishment and maintenance of:
Noront Resources Ltd. – Management’s Discussion and Analysis – 25
(i) controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its
annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and
reported within the time periods specified in securities legislation; and
(ii) a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with the issuer’s GAAP.
The certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the
representations they are making. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer,
such as the Company, to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional
risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities
legislation.
CRITICAL ACCOUNTING ESTIMATES
Deferred Mining Property Acquisition
Noront capitalizes mining property acquisition costs which are to be amortized when production is attained or the balance thereof written
off should the property be disproven through exploration or abandoned. On an ongoing basis, the Company evaluates deferred expenditures
relating to each property to assess whether there has been impairment in value. The Company recognizes write-downs for impairment
where the carrying value of the mining property exceeds its estimated long-term net recoverable value. Recoverable value is estimated based
upon current exploration results and upon the Company’s assessment of the future probability of positive cash flows from the property or
from the sale of the property.
Future Site Restoration Costs
The Company has an obligation for future site restoration costs. The Company records the fair value of an asset retirement obligation as a
liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the
acquisition, construction, development and/or normal use of the assets. The fair value of the liability is added to the carrying amount of
the associated asset and this additional carrying amount is depreciated over the life of the asset. Subsequent to the initial measurement of
the asset retirement of the asset retirement obligation, the obligation is adjusted at the end of each period to reflect the passage of time and
changes in the estimated future cash flows underlying the obligation. If the obligation is settled for other than the carrying amount of the
liability, the Company will recognize a gain or loss on settlement.
Stock Options and Warrants
The Black-Scholes option valuation model used by the Company to determine fair values for stock-based compensation was developed for
use in estimating the fair value of freely traded options. This model requires input of highly subjective assumptions including future stock
volatility and expected time until exercise. Changes in the subjective input assumptions can materially affect the fair value estimate.
RISKS AND UNCERTAINTIES
Noront’s business of exploring mineral resources involves a variety of operational, financial and regulatory risks that are typical in the
natural resource industry. The risk factors include risks summarized below, risk factors disclosed at page 4 herein, and risk factors disclosed
under the heading “Risk Factors” in the Company’s most recent AIF, available electronically on SEDAR. The Company attempts to
mitigate these risks and minimize their effect on its financial performance, but there is no guarantee that the Company will be profitable in
the future, and Noront common shares should be considered speculative.
Mineral Exploration
The business of exploration for minerals and mining involves a high degree of risk. A relatively small proportion of properties that are
explored are ultimately developed into producing mines. At present, there are no known bodies of commercial ore on any of the mineral
properties in which the Company holds interest or intends to acquire an interest and the proposed exploration program is an exploratory
search for ore. Unusual or unexpected formations, formation pressures, fires, power outages, labour disruptions, flooding, cave-ins,
landslides and the inability to obtain suitable or adequate machinery, equipment or labour are other risks involved in the conduct of
Noront Resources Ltd. – Management’s Discussion and Analysis – 26
exploration programs. The Company has limited experience in the development and operation of mines and has relied on and may continue
to rely upon consultants and others for exploration and operating expertise. The economics of developing gold, base metal and other
mineral properties is affected by many factors including the cost of operations, variation of the grade of ore mined, and fluctuations in the
price of any minerals produced.
Additional Funding Requirements and Potential Dilution
Noront has no current or foreseeable prospect of generating significant revenues. Accordingly, the success of the Company is dependent,
among other things, on obtaining sufficient funding to enable the Company to explore and develop its properties. There can be no
assurance that the Company will be able to obtain adequate financing in the future or that the terms of such financing will be favourable.
Failure to obtain such additional financing could result in delay or indefinite postponement of further exploration and development of its
projects with the possible loss of such properties.
The Company will require new capital to continue to operate its business and to continue with exploration on its mineral properties,
and there is no assurance that capital will be available when needed, if at all. It is likely such additional capital will be raised through the
issuance of additional equity, which will result in dilution to the Company’s shareholders.
As of July 17, 2012, the Company had 230,297,660 shares outstanding, 11,451,668 stock options outstanding with a weighted average
exercise price of $1.27 expiring between 2012 and 2016 and 10,839,633 warrants outstanding. The issuance of common shares of the
Company upon the exercise of options and/or warrants will dilute the ownership of the Company’s current shareholders. Noront may also
issue additional securities convertible into common shares of Noront in the future, the conversion of which would result in further dilution
to the shareholders of the Company.
Continuation of Operating Losses
The Company does not have a long historical track record of operating upon which investors may rely. Consequently, investors will
have to rely on the expertise of the Company’s management. Further, the Company’s properties are in the exploration stage and are not
commercially viable at this time. The Company does not have a history of earnings or the provision of return on investment, and there is no
assurance that it will produce revenue, operate profitably or provide a return on investment in the future.
Title to Mineral Properties (Ownership Rights)
Although title to the properties has been reviewed by or on behalf of Noront, no assurances can be given that there are no title defects
affecting the properties. Title insurance generally is not available for mining claims in Canada and Noront’s ability to ensure that it has
obtained secure claim to individual mineral properties or mining concessions may be limited. Noront has not conducted surveys of the
claims in which it holds direct or indirect interests, therefore, the precise area and location of such claims may be in doubt. It is possible
that the properties may be subject to prior unregistered liens, agreements, transfers or claims, including native land claims and title may be
affected by, among other things, undetected defects. In addition, Noront may be unable to operate the properties as permitted or to enforce
its rights with respect to its properties.
Resource Estimates
The resources presented in this document are estimates and no assurance can be given that the anticipated tonnages and grades will be achieved or
that the expected level of recovery will be realized. Such figures have been determined based upon assumed metal prices. Future production
could differ dramatically from estimates due to mineralization or formations different from those predicted by drilling, sampling and similar
examinations or declines in the market price of the metals may render the mining of some or all of the resources as uneconomic.
Economic
Even if the Company’s exploration programs are successful, factors beyond the control of the Company may affect the marketability of any
mineral products discovered. The prices of mineral products have historically fluctuated widely and are affected by numerous factors beyond
the Company’s control, including international, economic and political trends, expectations for inflation, currency exchange fluctuations,
interest rates, global or regional consumption patterns, speculative activities and worldwide production levels. The effect of these factors
cannot accurately be predicted.
Noront Resources Ltd. – Management’s Discussion and Analysis – 27
Commodity Price Risk
The ability of the Company to develop its mining properties and the future profitability of the Company is directly related to the market
price of gold and base minerals.
Competition
The mining industry is intensely competitive in all its phases. The Company competes with many companies possessing greater financial
resources and technical facilities than itself for the acquisition of mineral interests as well as for the recruitment and retention of qualified
employees, contractors and consultants.
Environmental
The Company’s operations are subject to environmental regulations promulgated by local, provincial and federal government agencies
from time to time. Environmental legislation provides for restrictions and prohibitions of spills, releases or emissions of various
substances produced in association with certain mining industry operations, such as seepage from tailing disposal areas, which could
result in environmental pollution. A breach of such legislation may result in the imposition of fines and penalties. In addition, certain
types of operations require submissions to and approval of environmental impact assessments. Environmental legislation is evolving in a
manner, which means stricter standards and enforcement, and fines and penalties for non-compliance are more stringent. Environmental
assessments of proposed projects carry a heightened degree of responsibility for companies and directors, officers and employees. The cost
of compliance with changes in governmental regulations has a potential to reduce the profitability of operations. The Company intends to
fully comply with all environmental regulations.
Failure to comply with applicable laws, regulations, and permitting requirements may result in enforcement actions, including orders
issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring
capital expenditures, installation of additional equipment, or remedial actions. Parties engaged in mining operations may be required to
compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for
violations of applicable laws or regulations and, in particular, environmental laws.
Although variable, depending on location and the governing authority, land rehabilitation requirements are generally imposed on
mineral exploration companies, as well as companies with mining operations, in order to minimize long-term effects of land disturbance.
Rehabilitation may include requirements to control dispersion of potentially deleterious effluents and to reasonably re-establish
pre-disturbance land forms and vegetation. In order to carry out rehabilitation obligations imposed on the Company in connection with
its mineral exploration, the Company must allocate financial resources that might otherwise be spent on further exploration and/or
development programs.
First Nations
Noront is committed to working in partnership with our local communities and First Nations in a manner which fosters active participation
and mutual respect. Noront works towards minimizing negative project impacts, encouraging certain joint consultation processes,
addressing certain decision making processes and towards maintaining meaningful ongoing dialogue not only for the Company but for all
participants in the Ring of Fire region.
Many of Noront’s contractors and suppliers live and work in the local communities. The Company regularly consults with communities
proximal to the Company’s exploration activities to advise them of plans and answer any questions they may have about current and future
activities. The objective is to operate to the benefit of the shareholders and the local communities using the resources and the environment
today without compromising the long-term capacity to support post exploration and ultimately post mining land uses.
First Nations in Ontario are increasingly making lands and rights claims in respect of existing and prospective resource projects on lands
asserted to be First Nation traditional or treaty lands. Should a First Nation make such a claim in respect of the Properties and should such
claim be resolved by government or the courts in favour of the First Nation, it could materially adversely affect the business of Noront.
Noront Resources Ltd. – Management’s Discussion and Analysis – 28
Joint Ventures and Option Agreements
Noront Resources enters into option agreements and joint ventures as a means of gaining property interests and raising funds. Any failure
of any partner to meet its obligations to Noront or other third parties, or any disputes with respect to third parties’ respective rights and
obligations could have a material adverse affect on such agreements. In addition, Noront may be unable to exert direct influence over
strategic decisions made in respect to properties that are subject to the terms of these agreements.
Litigation
The Company is subject to litigation risks. All industries, including the mining industry, are subject to legal claims, with and without
merit. Defence and settlement costs of legal claims can be substantial, even with respect to claims that have no merit. Due to the inherent
uncertainty of the litigation process, the resolution of any particular legal proceeding to which the Company is or may become subject could
have a material effect on its financial position, results of operations or the Company’s mining and project development operations.
Legal
Amendments to current laws, regulations and permits governing operations and activities of mining companies, or more stringent
implementation thereof, could have a material adverse impact on Noront Resources and cause increases in expenditures or exploration costs
or reduction in levels of activities on our exploration projects, or require abandonment or delays in the development of new exploration
properties.
Regulations and Permitting
The operations of the Company may require licenses and permits from various local, provincial and federal governmental authorities.
There can be no assurance that the Company will be able to obtain all necessary licenses and permits that may be required to carry out
exploration, development, or mining operations, at its projects.
Uninsurable Risks
The mining industry is subject to significant risks that could result in damage to, or destruction of, mineral properties, personal injury or
death, environmental damage, delays in exploration, and monetary losses and possible legal liability. Where Noront considers it practical
to do so, it maintains insurance in amounts believed to be reasonable, including coverage for directors’ and officers’ liability and fiduciary
liability and others.
Such insurance, however, contains exclusions and limitations on coverage. Accordingly, Noront’s insurance policies may not provide
coverage for all losses related to Noront’s activities (and specifically do not cover environmental liabilities and losses). The occurrence of
losses, liabilities or damage not covered by such insurance policies could have a material and adverse effect on Noront’s results of operations
and financial condition. Noront cannot be certain that insurance will be available to the Company, or that appropriate insurance will be
available on terms and conditions acceptable to the Company. In some cases, coverage is not available or considered too expensive relative
to the perceived risk.
Dependence on Key Employees, Contractors and Management
Noront currently has a small executive management group, which is sufficient for the Company’s present stage of activity. Given that our
success to date has depended, and in the future will continue to depend, in large part on the efforts of the current executive management
group, the loss of a significant number of the members of this group could have a material adverse effect on the Company, its business and
its ability to develop its projects. Noront does not maintain key person life insurance. Accordingly, the loss of the services of one or more of
such key management personnel could have a material adverse effect on the Company.
The mining industry has been impacted by increased worldwide demand for critical resources including industry consultants, engineering
firms and technical experts. These shortages have caused increased costs and delays in planned activities. Noront is also dependent upon
a number of key personnel, including the services of certain key employees and contractors. Noront’s ability to manage its activities, and
hence its success, will depend in large part on the efforts of these individuals. Noront faces intense competition for qualified personnel, and
there can be no assurance that the Company will be able to attract and retain such personnel.
Noront Resources Ltd. – Management’s Discussion and Analysis – 29
Labour and Employment
Relations between the Company and its employees may be affected by changes in the scheme of labour relations that may be introduced
by the relevant governmental authorities in whose jurisdictions the Company carries on business. Changes in such legislation or in the
relationship between the Company and its employees may have a material adverse effect on the Company’s business, results of operations
and financial condition. As the Company’s business grows, it will require additional key financial, administrative, mining, marketing and
public relations personnel as well as additional staff for operations.
Conflict of Interest
Certain directors or proposed directors of the Company are also directors, officers or shareholders of other companies that are similarly
engaged in the business of acquiring, developing and exploiting natural resource properties. Such associations may give rise to conflicts
of interest from time to time. The directors of the Company are required by law to act honestly and in good faith with a view to the best
interests of the Company and to disclose any interest, which they may have in any project opportunity of the Company. If a conflict of
interest arises at a meeting of the board of directors, any director in a conflict will disclose his interest and abstain from voting on such
matter. In determining whether or not the Company will participate in any project or opportunity, the directors will primarily consider the
degree of risk to which the Company may be exposed and its financial position at that time.
Share Price
The market price of a publicly traded stock is affected by many variables not directly related to the success of the Company. In recent years,
the securities markets have experienced a high level of price and volume volatility, and the market price of securities of many companies,
particularly those considered to be development stage companies, has experienced wide fluctuations which have not necessarily been related
to the operating performance, underlying asset values or prospects of such companies. There can be no assurance that such fluctuations will
not affect the price of the Company’s securities.
Noront Resources Ltd. – Management’s Discussion and Analysis – 30
CHANGES IN ACCOUNTING POLICIES
Recently Issued Accounting Standards
International Financial Reporting Standards
The Company started reporting under IFRS for the year ended April 30, 2012; comparative numbers previously reported under Canadian
GAAP are restated to comply with IFRS.
Transition to IFRS – Reconciliation of Consolidated Balance Sheets as reported under Canadian GAAP and IFRS
a) Reconciliation of Consolidated Balance Sheets as reported under Canadian GAAP and IFRS
Current Assets
Cash & cash equivalents
Restricted cash
Marketable securities
Taxes & duties receivable
Supplies inventory
Prepaid expenses
Total Current Assets
Non-Current Assets
Equipment
Intangible assets
Mineral properties
Total Non-Current Assets
Total Assets
Current Liabilities
Accounts payable
Deferred flow-through share premium
Provision for environmental expenditure
Total Current Liabilities
Non-Current Liabilities
Provision for environmental expenditure
Deferred income tax
Total Non-Current Liabilities
Total Liabilities
Shareholders’ Equity
Capital Stock
Warrants & broker warrants
Contributed surplus
Deficit
Accumulated other comprehensive income
Total Shareholders’ Equity
Total Shareholders’ Equity and Liabilities
April 30, 2011
CGAAP
Effect of April 30, 2011
IFRS
Transition
8,888,928
385,046
30,503
1,725,747
222,063
11,252,287
8,888,928
385,046
30,503
1,725,747
1,611,097
222,063
12,863,384
1,611,097
1,611,097
386,610
-
108,788,374
109,174,984
120,427,271
1,163,064
123,852
(106,934,975)
(105,648,059)
(104,036,962)
1,549,674
123,852
1,853,399
3,526,925
16,390,309
2,525,206
-
564,372
3,089,578
94,370
(47,892)
46,478
2,525,206
94,370
516,480
3,136,056
125,553
6,297,894
6,423,447
9,513,025
10,445
(6,297,894)
(6,287,449)
(6,240,971)
135,998
-
135,998
3,272,054
136,879,569
1,570,455
26,576,133
(53,942,414)
(169,497)
110,914,246
120,427,271
642,522
(205,183)
(98,233,330)
(97,795,991)
(104,036,962)
137,522,091
1,570,455
26,370,950
(152,175,744)
(169,497)
13,118,255
16,390,309
i
ii
ii
i
iii
iv
iv
v
vi
vii
viii
Noront Resources Ltd. – Management’s Discussion and Analysis – 31
b) Reconciliation of Consolidated Loss and Comprehensive Loss as reported under Canadian GAAP and IFRS
Expenses
Exploration expenditures & technical studies
Office and general
Professional fees
Communications & travel
Amortization
Share-based compensation
Realized loss on sale of marketable securities
Loss before finance items and tax
Interest income
Flow-through share premium
Loss before tax
Recovery of deferred income tax
Net Loss
Unrealized loss on AFS Mark. Sec
Reclassification of losses realized
Total other comprehensive loss
i
vii
iii
v
Year ended
April 30, 2011
CGAAP
Year ended
Effect of April 30, 2011
IFRS
Transition
85,900
3,413,320
785,052
1,287,124
224,869
1,584,911
2,452,370
9,833,546
(182,393)
9,651,153
(1,589,955)
8,061,198
33,025
(2,707,211)
5,387,012
31,057,331
190,624
445,970
(2,707,270)
28,986,655
(2,768,817)
26,217,838
1,589,955
27,807,793
2,707,264
30,515,057
31,143,231
3,413,320
785,052
1,287,124
415,493
2,030,881
(254,900)
38,820,201
(182,393)
(2,768,817)
35,868,991
-
35,868,991
33,025
53
35,902,069
c) Reconciliation of Consolidated Shareholders’ Equity as reported under Canadian GAAP and IFRS
Shareholders’ Equity previously reported under Canadian GAAP
Adjustments upon adoption of IFRS:
Change in capitalization policy - Mineral Properties
Change in capitalization policy - Equipment additions
Change in flow-through shares premium liability
Change in discount rate for provision of environmental expenditure
Change in provision for deferred income tax
i
ii
iii
iv
v
April 30, 2011
110,914,246
(105,323,878)
1,286,916
(94,370)
37,447
6,297,894
13,118,255
i Mineral Properties, Supplies Inventory & Exploration Expenditures and Technical Studies
Under the alternatives of IFRS 1 - First Time Adoption, the Company has selected the option to expense exploration expenditures until
a triggering event has occurred to commence capitalization. As a result, supplies inventory consisting of fuel that is utilized in exploration
activities will be separately disclosed as a current asset.
ii Equipment & Intangible Assets
As a result of IFRS, capital assets that were previously capitalized as a part of mineral properties under the former capitalization policy are
now included in equipment and computer software is reclassified as intangible assets.
iii Deferred Flow-Through Share Premium
Under IFRS, the Company must recognize a liability for the premium on flow-through shares paid by investors. The liability recorded
on transition to IFRS reduced the share capital previously recorded under Canadian GAAP. As flow-through expenses are incurred, the
liability is reduced and recorded in the consolidated statement of loss.
iv Provision for Environmental Expenditure
Prior to the application of IAS 37, the Company used a weighted average risk-adjusted discount rate of 8% and applied an inflation rate of
3%. IFRS requires using a risk-free pre-tax discount rate.
Noront Resources Ltd. – Management’s Discussion and Analysis – 32
v Deferred Income Taxes
The Company has selected the policy to expense exploration expenditures until management determines that future economic benefits will be
generated and capitalization commences. As a result, the deferred income tax liability recognized as a result of the previous capitalization
policy is no longer required on transition to IFRS.
vi Capital Stock
Under IFRS, the Company must recognize a liability for the premium on flow-through shares paid by investors. The liability recorded on
transition to IFRS reduced the share capital previously recorded under Canadian GAAP.
vii Share-Based Compensation & Contributed Surplus
Options issued to officers, employees and directors are measured using the grant date fair value of the equity instrument as required by IFRS 2.
Based on the Company’s options history, the forfeiture rate is 5% and the Company expects that 95% of the options will vest.
viii Accumulated Other Comprehensive Loss & Write-Down of Securities
The marketable securities written down in the twelve months ended April 30, 2011 had an impairment under Canadian GAAP that was
significant and prolonged. Under IFRS, this impairment would require immediate write-down, therefore the impairment is recognized at
the opening balance sheet date, May 1, 2010.
ADDITIONAL DISCLOSURE FOR VENTURE ISSUERS WITHOUT SIGNIFICANT REVENUE
Additional disclosure concerning the Company’s general and administrative expenses and resource property costs is available in the
Company’s consolidated financials for the year ended April 30, 2012.
OUTSTANDING SHARE INFORMATION
As at July 18, 2012
Authorized
Issued and outstanding shares
Options outstanding
Warrants outstanding
Fully diluted
Unlimited
230,297,660
14,035,000
10,839,633
255,172,293
ADDITIONAL INFORMATION
Additional information relating to Noront is available on the Internet at the SEDAR website www.sedar.com and is available on the
Company’s website located at www.norontresources.com.
Noront Resources Ltd. – Consolidated Financial Statements – 33
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of Noront Resources Ltd. (the “Company”) were prepared by management
in accordance with International Financial Reporting Standards. Management acknowledges responsibility for the preparation and
presentation of the consolidated financial statements, including responsibility for significant accounting judgments and estimates and the
choice of accounting principles and methods that are appropriate to the Company’s circumstances. The significant accounting policies of
the Company are summarized in Note 3 to these consolidated financial statements.
Management has established processes, which are in place to provide them sufficient knowledge to support management
representations that they have exercised reasonable diligence that (i) the consolidated financial statements do not contain any untrue
statement of material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in
light of the circumstances under which it is made, as of the date of and for the years presented by the consolidated financial statements and
(ii) the consolidated financial statements fairly present in all material respects the financial condition, results of operations and cash flows of
the Company, as of the date of and for the years presented in the consolidated financial statements.
The Board of Directors is responsible for ensuring that management fulfills its financial reporting responsibilities and for
reviewing and approving the consolidated financial statements together with other financial information. An Audit Committee assists the
Board of Directors in fulfilling this responsibility. The Audit Committee meets with management to review the internal controls over the
financial reporting process and the consolidated financial statements together with other financial information of the Company. The Audit
Committee reports its findings to the Board of Directors for its consideration in approving the consolidated financial statements together
with other financial information of the Company for issuance to the shareholders.
Management recognizes its responsibility for conducting the Company’s affairs in compliance with established financial
standards, and applicable laws and regulations, and for maintaining proper standards of conduct for its activities.
(signed)
Wesley Hanson, P. Geo
President and Chief Executive Officer
Toronto, Ontario
July 17, 2012
(signed)
Greg Rieveley, CA
Chief Financial Officer
Noront Resources Ltd. – Consolidated Financial Statements – 34
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of
Noront Resources Ltd.
We have audited the accompanying consolidated financial statements of Noront Resources Ltd. (the Company), which comprise
the consolidated statements of financial position as at April 30, 2012, April 30, 2011 and May 1, 2010 and the consolidated statements of
loss, comprehensive loss, changes in shareholders’ equity, and cash flows for the years ended April 30, 2012 and April 30, 2011, and the
related notes, which comprise a summary of significant accounting policies.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance
with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted
our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical
requirements and plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free
from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of
the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Noront
Resources Ltd. as at April 30, 2012, April 30, 2011, and May 1, 2010 and its financial performance and its cash flows for the years ended
April 30, 2012 and April 30, 2011 in accordance with International Financial Reporting Standards.
Emphasis of matter
Without qualifying our opinion, we draw attention to Note 1 in the consolidated financial statements which describes matters
and conditions that indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue
as a going concern.
(signed)
PricewaterhouseCoopers LLP
Chartered Accountants
Licensed Public Accountants
Toronto, Ontario
July 18, 2012
Noront Resources Ltd. – Consolidated Financial Statements – 35
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Expressed in Canadian Dollars)
Note
6
11
7
18a
8
9
10
14
12
11
11
12b
12d
Assets
Current Assets
Cash and cash equivalents
Restricted cash
Marketable securities
Taxes and duties receivable
Supplies inventory
Prepaid expenses
Total Current Assets
Non-Current Assets
Equipment
Intangible Assets
Mineral properties
Total Non-Current Assets
Total Assets
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable and accrued liabilities
Deferred flow-through share premium
Provision for environmental expenditure
Total Current Liabilities
Non-current Liability
Provision for environmental expenditure
Total Liabilities
Shareholders’ Equity
Capital stock
Warrants and broker warrants
Contributed surplus
Deficit
Accumulated other comprehensive loss
Total Shareholders’ Equity
Total Shareholders’ Equity and Liabilities
Going Concern (Note 1)
Basis of Preparation and Adoption of IFRS (Note 2)
Commitments and Contingencies (Note 16)
Approved on behalf of the Board of Directors:
As at
April 30,
2012
As at
April 30,
2011
As at
May 1,
2010
$
5,066,944
385,046
60,987
262,907
305,422
336,070
$
8,888,928
385,046
30,503
1,725,747
1,611,097
222,063
$
21,125,266
385,046
666,587
1,334,698
4,100,859
334,266
$
6,417,376
$
12,863,384
$
27,946,722
$
$
$
1,852,284
68,017
1,863,104
3,783,405
10,200,781
2,052,325
-
516,480
2,568,805
704,775
$
$
$
1,549,674
123,852
1,853,399
3,526,925
16,390,309
2,525,206
94,370
516,480
3,136,056
135,998
$
$
$
1,007,064
170,540
1,853,399
3,031,003
30,977,725
3,264,260
474,369
532,423
4,271,052
211,499
$
3,273,580
$
3,272,054
$
4,482,551
$ 156,663,209
2,575,675
28,755,355
(180,928,025)
(139,013)
$
$
6,927,201
10,200,781
$
$
$
137,522,091
1,570,455
26,370,950
(152,175,744)
(169,497)
13,118,255
16,390,309
$
$
$
116,837,016
1,416,211
24,685,119
(116,306,753)
(136,419)
26,495,174
30,977,725
(signed)
(signed)
Wes Hanson
Director
Paul Parisotto
Director
The accompanying notes are an integral part of these financial statements.
Noront Resources Ltd. – Consolidated Financial Statements – 36
CONSOLIDATED STATEMENTS OF LOSS
(Expressed in Canadian Dollars)
For the years ended April 30,
Expenses
Exploration expenditures and mining studies
Office and general
Amortization
Share-based compensation
Loss before finance items
Interest income
Gain on sale of marketable securities
Flow-through share premium
Accretion expense
Net loss
Note
18a
18b
8, 9
12c
12
11
2012
2011
$
$
21,852,135
4,743,730
407,555
2,257,010
(29,260,430)
158,454
13,296
338,798
(2,399)
$
(28,752,281)
$
$
$
$
31,132,514
5,485,496
415,493
2,030,881
(39,064,384)
182,393
254,900
2,768,817
(10,717)
(35,868,991)
(0.20)
Loss per share - basic and fully diluted
15
$
(0.14)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Expressed in Canadian Dollars)
For the years ended April 30,
Net loss
Other comprehensive loss
Unrealized gain (loss) on marketable securities, net of taxes
2012
2011
$
(28,752,281)
$
(35,868,991)
30,484
(33,078)
Total comprehensive loss
$
(28,721,797)
$
(35,902,069)
The accompanying notes are an integral part of these financial statements.
Noront Resources Ltd. – Consolidated Financial Statements – 37
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Expressed in Canadian dollars, unless otherwise indicated)
Common
Shares
Capital
Stock
Warrants
and Broker
Warrants
167,885,442
15,673,200
-
-
-
583,332
-
-
-
$ 116,837,016
23,998,456
(2,388,818)
(1,516,035)
(154,244)
400,666
345,050
-
-
$ 1,416,211
-
-
-
154,244
-
-
-
-
Contributed
Surplus
$ 24,685,119
-
-
-
-
-
(345,050)
2,030,881
-
Accumulated
Other
Comprehensive
Deficit
Income (Loss)
Total
$ (116,306,753) $
-
-
-
-
-
-
-
(35,868,991)
(136,419)
-
-
-
-
-
-
-
-
$ 26,495,174
23,998,456
(2,388,818)
(1,516,035)
-
400,666
-
2,030,881
(35,868,991)
Balance, May 1, 2010
Flow-through private placement
Flow-through share premium
Cost of issue - cash
Cost of issue - broker warrants
Exercise of options
Fair value of options exercised
Share-based compensation
Net loss for the year
Net change in unrealized losses on
available-for-sale marketable
securities, net of taxes
Balance, April 30, 2011
Flow-through private
placement (Note 12b)
Issue of shares (Note 12b)
Flow-through share premium
Cost of issue - cash
Exercise of options
Fair value of options exercised
Warrants allocation (Note 12d)
Fair value of warrants expired
Share-based compensation (Note 12b)
Net loss for the year
Net change in unrealized gains on
available-for-sale marketable
securities, net of taxes
-
-
-
-
-
(33,078)
(33,078)
184,141,974
$ 137,522,091
$ 1,570,455
$ 26,370,950
$ (152,175,744) $
(169,497)
$ 13,118,255
4,073,800
20,234,967
-
-
49,999
-
-
-
-
-
3,503,468
17,402,072
(244,428)
(418,380)
31,001
26,849
(1,159,464)
-
-
-
-
-
-
-
-
-
1,159,464
(154,244)
-
-
-
-
-
-
-
(26,849)
-
154,244
2,257,010
-
-
-
-
-
-
-
-
-
-
(28,752,281)
-
-
-
-
-
-
-
-
-
-
3,503,468
17,402,072
(244,428)
(418,380)
31,001
-
-
-
2,257,010
(28,752,281)
-
-
-
-
-
30,484
30,484
Balance, April 30, 2012
208,500,740
$ 156,663,209
$ 2,575,675
$ 28,755,355
$ (180,928,025) $
(139,013)
$ 6,927,201
The accompanying notes are an integral part of these financial statements.
Noront Resources Ltd. – Consolidated Financial Statements – 38
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Canadian Dollars)
For the years ended April 30,
Note
2012
2011
Operating activities
Net loss for the year
Amortization
Share-based compensation
Accretion of provision of environmental expenditure
Remeasurement of provision of environmental expenditure
Gain on sale of marketable securities
Flow-through share premium
Net change in non-cash working capital:
Taxes and duties receivable
Prepaid expenses
Accounts payable and accrued liabilities
Supplies inventory
$
(28,752,281)
407,555
2,257,010
2,399
-
(13,296)
(338,798)
1,462,840
(114,007)
(472,881)
1,305,675
$
(35,868,991)
415,493
2,030,881
10,717
(102,161)
(254,900)
(2,768,817)
(391,049)
112,203
(739,054)
2,489,762
Net cash used in operating activities
$
(24,255,784)
$
(35,065,916)
Investing activities
Mineral properties
Acquisition of equipment
Acquisition of intangible assets
Proceeds on disposal of marketable securities
(9,705)
(80,991)
(6,961)
13,296
-
(859,969)
(51,443)
857,900
Net cash used in investing activities
$
(84,361)
$
(53,512)
Financing activities
Issue of common shares and units, net of share issue costs
12b
20,518,161
22,883,090
Net cash provided by financing activities
Change in cash and cash equivalents
Cash and cash equivalents, beginning of year
$
$
20,518,161
(3,821,984)
8,888,928
$
$
22,883,090
(12,236,338)
21,125,266
Cash and cash equivalents, end of year
$
5,066,944
$
8,888,928
The accompanying notes are an integral part of these financial statements.
Noront Resources Ltd. – Notes to the Consolidated Financial Statements – 39
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars, unless otherwise noted)
For the years ended April 30, 2012 and 2011
1.
NATURE OF BUSINESS AND GOING CONCERN
Noront Resources Ltd. (the “Company” or “Noront”) is a resource company listed on tier 1 of the TSX Venture Exchange (“TSX-V”)
involved in the exploration, development and acquisition of properties prospective in base and precious metals, including: nickel,
copper, platinum group metals, chromite, precious metals and vanadium. The Company’s flagship asset is the Eagle’s Nest nickel,
copper, platinum, palladium and gold deposit, part of the Company’s McFaulds Lake Project, in the Ring of Fire area (“ROF”)
that is located in the James Bay Lowlands, Ontario. Eagle’s Nest is the Company’s most advanced mineral discovery in the ROF,
the first of five mineral discoveries the Company has made since August 2007. The address of Noront’s head office is
105 Adelaide Street West, Suite 1100, Toronto, Ontario, Canada, M5H 1P9.
The Company is a development stage entity that does not generate operating revenues and has limited financial resources.
The Company is subject to risks and challenges similar to companies in a comparable stage of development. These risks include
the challenges of securing adequate capital in view of exploration, development and operational risks inherent in the mining
industry and global economic and commodity price volatility. The underlying value of the Company’s mineral properties and the
recoverability of the related capitalized costs are entirely dependent on the Company’s ability to obtain the necessary permits to
operate and secure the required financing to complete development of and establish future profitable production from its mineral
assets, or the proceeds from the disposition of, its mineral properties.
These consolidated financial statements have been prepared using International Financial Reporting Standards (“IFRS”) as issued
by the International Accounting Standards Board (IASB) applicable to a going concern, which assumes the Company will be
able to continue to operate for the foreseeable future and contemplates the realization of assets and settlement of liabilities in the
normal course of business as they come due. For the year ended April 30, 2012, the Company recorded a net loss of $28.8 million
(2011 – net loss of $35.9 million) and reported an accumulated deficit of $180.9 million (2011 – $152.2 million).
The Company’s sole source of funding has been the issuance of equity securities for cash. The Company’s cash balance at April 30,
2012 is $5.1 million and subsequent to year end the Company raised an additional $11.2 million, net of cost of issuance, through
the issuance of equity securities.
The majority of the Company’s exploration and development efforts occur in the James Bay Lowlands, a remote region of
Northern Ontario. Due to the lack of infrastructure in the area the Company relies on the winter season when the Company
can take advantage of ice airstrips to cost effectively move bulk supplies into the project site. Depending on the planned program
for the ensuing year and the level of supplies inventory at site, the Company’s cash flow needs may be greater during this winter
period. Over the next 12 months the Company plans to further the development of its Eagle’s Nest project by 1) incurring
expenditures towards obtaining all required permits; 2) drilling for condemnation and metallurgical sampling purposes; 3)
purchasing long-lead equipment; 4) incurring other mine project costs including ongoing project design and engineering costs;
5) incurring general corporate and operating expenses. The Company’s ability to complete its plans is dependent on its ability to
source additional financing. On an ongoing basis, the Company examines various financing alternatives to address future funding
requirements and its planned activities for the ensuing year to ensure its cash on hand is adequate to enable it to continue as a
going concern.
The Company has successfully raised financing to date to continue as a going concern, however, there can be no assurance that
it will be able to do so in the foreseeable future. As a result, given these material uncertainties, there may be significant doubt
regarding the going concern assumption and accordingly, the use ultimately of accounting principles applicable to a going
concern.
These consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities, the reported
expenses and balance sheet classifications that would be necessary if the going concern assumption was inappropriate. These adjustments
could be material.
Noront Resources Ltd. – Notes to the Consolidated Financial Statements – 40
2.
BASIS OF PREPARATION AND ADOPTION OF IFRS
The Company prepares its financial statements in accordance with Canadian generally accepted accounting principles as defined
in the Handbook of the Canadian Institute of Chartered Accountants (“CICA Handbook”).
In 2010, the CICA Handbook was revised to incorporate International Financial Reporting Standards as issued by the
International Accounting Standards Board (“IFRS”) and to require publicly accountable enterprises to apply these standards
effective for years beginning on or after January 1, 2011. Accordingly, these are the Company’s first annual consolidated financial
statements prepared in accordance with IFRS as issued by the IASB. In these financial statements, the term “Canadian GAAP”
refers to Canadian GAAP before the adoption of IFRS.
The consolidated financial statements have been prepared in compliance with IFRS. Subject to certain transition elections and
exceptions disclosed in Note 20, the Company has consistently applied the accounting policies used in the preparation of its
opening IFRS statement of financial position at May 1, 2010 throughout all periods presented, as if these policies had always
been in effect. Note 20 discloses the impact of the transition to IFRS on the Company’s reported financial position, financial
performance and cash flows, including the nature and effect of significant changes in accounting policies from those used in the
Company’s consolidated financial statements for the year ended April 30, 2012 prepared under Canadian GAAP.
These consolidated financial statements were approved by the Board of Directors on July 17, 2012.
3.
SIGNIFICANT ACCOUNTING POLICIES
a) Principles of Consolidation
These consolidated financial statements include the accounts of Noront Resources Ltd. and its wholly-owned subsidiaries,
Noront Resources 2008 Inc. and Noront Mexico S.A de C.V. All significant intercompany balances and transactions have
been eliminated upon consolidation.
b) Functional and Presentation Currency
Items included in the consolidated financial statements are measured using the currency of the primary economic
environment in which the Company operates (the “functional currency”) which was determined to be Canadian dollars for
all entities. The consolidated financial statements are presented in Canadian dollars, which is the Company’s presentation
currency.
c) Cash and Cash Equivalents
Cash and cash equivalents have original maturities of less than 90 days.
d) Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, restricted cash, marketable securities, accounts
payable and accrued liabilities.
The Company has classified its cash and cash equivalents and restricted cash as loans and receivables which are measured
at amortized cost. The carrying value of these instruments approximates their fair values due to their short-term nature.
Accounts payable and accrued liabilities are classified as other financial liabilities which are measured at amortized cost.
Marketable securities in publicly traded companies, which trade in an active market, have been designated as available-for-sale
and are recorded in the consolidated statements of financial position at fair value. Fair value is determined directly by
reference to quoted market prices in active markets. Changes in fair value are recorded in other comprehensive income (loss)
until the investment is sold or impaired at which time the amounts would be recorded in the consolidated statement of loss.
For investments classified as available-for-sale, a significant or prolonged decline in the fair value of the marketable security
below its cost is evidence that the asset is impaired. If any such evidence exists for marketable securities, the cumulative loss
measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial
asset previously recognized in profit or loss is removed from equity and recognized in the consolidated statement of loss.
Noront Resources Ltd. – Notes to the Consolidated Financial Statements – 41
The three levels of fair value hierarchy are:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 - Inputs other than quoted prices that are observable for assets or liabilities, either directly or indirectly; and
Level 3 - Inputs for assets or liabilities that are not based on observable market data.
Marketable securities are classified as Level 1 on the fair value hierarchy.
e) Duties and Taxes Receivable
Duties and tax receivable consists primarily of HST receivable from government authorities in Canada in respect of the
Company’s expenses.
f) Supplies Inventory
Supplies inventory is comprised of diesel fuel and jet fuel and is valued at the lower of cost and net realizable value. Cost includes
the cost of fuel and transportation to ship the supplies inventory to the site and is determined using the first in, first out
method. Net realizable value is the estimated selling price to a third party in the event the Company would need to dispose
of the fuel.
g)
Intangible Assets
Intangible assets are recorded at cost less accumulated amortization and accumulated impairment loss. Amortization is
provided over the related assets’ estimated useful life using the declining balance method of amortization at a rate of 50%.
h) Equipment
Equipment is recorded at cost less accumulated amortization and accumulated impairment loss. Amortization is provided
over the related assets’ estimated useful lives using the following methods and annual rates:
20%-30% declining balance
Equipment
20% declining balance
Furniture and fixtures
20% declining balance
Leasehold improvements
i) Mineral Properties, Exploration Expenditures and Mining Studies
Mineral property acquisition costs are capitalized and the balance is written off should the property be disproven by
exploration or abandoned. These assets are recorded at cost. The carrying value of these assets is dependent, among other
things upon: the existence of economically recoverable reserves, the ability of the Company to obtain the necessary financing
to complete exploration and development, and upon future profitable production or proceeds from disposition of such
properties. The assets are evaluated each quarter for indications of impairment.
Where the Company considers that there is an impairment indicator such as significant decrease in resource and reserve
estimates, expiration or permanent cancellation of rights, impairment is assessed and if necessary, recognised for the amount
by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of fair value less cost to sell
or value in use. An impairment loss is recognized whenever the carrying amount of these assets or its cash generating unit
(which is the property) exceeds its recoverable amount. Impairment losses are recorded in the consolidated statement of
net loss.
Exploration expenditures are the costs incurred in the initial search for mineral deposits with economic potential.
Exploration expenditures typically include costs associated with prospecting, sampling, mapping, diamond drilling and other
work involved in searching for ore. Mining studies are the costs related to the technical, environmental, permitting and
consultation in support of the Company’s pre feasibility and feasibility studies.
All exploration expenditures and mining studies are expensed as incurred. Exploration expenditures and mining studies will
be capitalized when management determines that future economic benefits will be generated as a result of the expenditures.
j) Provision for Environmental Expenditure
Both legal and constructive obligations associated with the retirement of long-lived assets are recorded as a provision for
environmental expenditure when there is a probability of an outflow of resources embodying economic benefits to settle
the obligation. The amount of the provision is measured at the best estimate of the expenditure needed to settle the present
obligation. It is possible that the Company’s estimates of its provision for environmental expenditure could change as a result
of changes in regulations, the extent of environmental remediation required and the means of reclamation or costs estimates.
Changes in estimates are accounted for prospectively from the period these estimates are revised.
Noront Resources Ltd. – Notes to the Consolidated Financial Statements – 42
Significant judgments and estimates are involved in forming expectations of future activities and the amount and timing
of the associated cash flows. Those expectations are formed based on existing environmental and regulatory requirements
or, if more stringent, the Company’s environmental policies which give rise to constructive obligations. The cash flows are
discounted using the current real risk free pre tax discount rate.
k) Joint Ventures
A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject
to joint control. Joint control is the contractually agreed sharing of control such that significant operating and financial
decisions require the unanimous consent of the parties sharing control. The Company’s joint ventures consist of jointly
controlled assets (“JCAs”). The balances related to JCA’s are not material.
A JCA is a joint venture in which the venturers have joint control and ownership over the assets contributed to or acquired
for the purposes of the joint venture. JCAs do not involve the establishment of a corporation, partnership or other entity.
The participants in a JCA derive benefit from the joint activity through a share of production and bears an agreed share of
expenses incurred rather than by receiving a share of the net operating results. The Company’s proportionate interest in the
assets, liabilities, expenses, and cash flows of the JCAs are incorporated into the consolidated financial statements under the
appropriate headings. Also see New Accounting Standards-IFRS 11 Joint Ventures in Note 3(q).
l)
Loss per Common Share
The basic earnings (loss) per share is calculated based upon the weighted average number of common shares outstanding
during the year. Stock options and warrants outstanding are not included in the computation of diluted earnings (loss) per
share if their inclusion would be anti dilutive.
m) Share-based Compensation
The Company grants stock options to certain employees and non employees under the terms of the Company’s Stock
Option Plan (“the Plan”). Each tranche in an option award is considered a separate award with its own vesting period and
grant date fair value. The fair value of each tranche is measured at the date of grant using the Black-Scholes option pricing
model. The Black-Scholes option pricing model requires estimates for the expected life of options and stock price volatility
which can materially affect the fair value estimate. Volatility and expected life of option is estimated based on an analysis of
factors such as the Company’s historical price trends, history of option holder activity, and peer and industry benchmarks for
similar transactions.
Share-based compensation expense is recognized over the tranche’s vesting period by increasing contributed surplus based
on the number of awards expected to vest. This number is reviewed at least annually, with any change in estimate recognized
immediately in share-based compensation expense with a corresponding adjustment to contributed surplus.
n)
Income Taxes
Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying values of
assets and liabilities and their respective income tax bases (temporary differences), and losses carried forward.
Deferred income tax is determined on a non-discounted basis using tax rates and laws that have been enacted or
substantively enacted at the balance sheet date and are expected to apply when the deferred tax asset is realized or liability is
settled. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against
which the deductible temporary differences can be utilized.
The determination of the ability of the Company to utilize tax loss carry-forwards to offset deferred tax payable involves
judgment and certain assumptions about the future performance of the Company. Assessment is required about whether
it is “probable” that the Company will benefit from the prior losses and other deferred tax assets. Changes in economic
conditions, metal prices and other factors could result in revisions to the estimates of the benefits to be realized or the timing
of the utilization of the losses.
o) Flow-through Shares
The Company has adopted a policy whereby flow-through proceeds are allocated between the offering of the common
shares and the sale of tax benefits when the flow-through common shares are offered. The allocation is made based on the
difference (“premium”) between the quoted price of the common shares and the amount the investor pays for the
flow-through shares. A liability is recognized for the premium paid by the investors and is then derecognized in the period
the eligible expenditures are incurred, which is recorded in the consolidated statement of loss.
Noront Resources Ltd. – Notes to the Consolidated Financial Statements – 43
p) Segment Disclosure
The Company’s chief operating decision maker is responsible for allocating resources and assessing performance of the
operations according to strategic decisions. The Company’s operations comprise of a reporting segment engaged in the
exploration of minerals in Canada.
q) Critical Accounting Estimates and Judgments
The preparation of these consolidated financial statements requires management to make certain estimates, judgments and
assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported
amounts of expenses during the reporting period. Actual outcomes could differ from these estimates.
These consolidated financial statements include estimates that, by their nature, are uncertain. The impacts of such estimates
are pervasive throughout the consolidated financial statements, and may require accounting adjustments based on future
occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and future
periods if the revision affects both current and future periods. These estimates are based on historical experience, current and
future economic conditions and other factors, including expectations of future events that are believed to be reasonable under
the circumstances.
Significant assumptions about the future that management has made that could result in a material adjustment to the
carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, relate, but are not
limited to, the following:
Mineral Properties
Noront capitalizes mining property acquisition costs which are to be amortized when production is attained or the balance
thereof written off should the property be disproven through exploration or abandoned. On an ongoing basis, the Company
evaluates deferred expenditures relating to each property to assess whether there has been impairment in value. The Company
recognizes write-downs for impairment where the carrying value of the mining property exceeds its estimated long-term net
recoverable value. Recoverable value is estimated based upon current exploration results and upon the Company’s assessment
of the future probability of positive cash flows from the property or from the sale of the property.
Future Site Restoration Costs
The Company has an obligation for future site restoration costs. The Company records the fair value of an asset retirement
obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived
assets that result from the acquisition, construction, development and/or normal use of the assets. The fair value of the
liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over
the life of the asset. Subsequent to the initial measurement of the asset retirement of the asset retirement obligation, the
obligation is adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows
underlying the obligation. If the obligation is settled for other than the carrying amount of the liability, the Company will
recognize a gain or loss on settlement.
Stock Options and Warrants
The Black-Scholes option valuation model used by the Company to determine fair values for stock-based compensation
was developed for use in estimating the fair value of freely traded options. This model requires input of highly subjective
assumptions including future stock volatility and expected time until exercise. Changes in the subjective input assumptions
can materially affect the fair value estimate.
r) New accounting standards issued but not yet applied
IFRS 9 Financial Instruments
In November 2009, the IASB issued IFRS 9 Financial Instruments as the first step in its project to replace IAS 39 Financial
Instruments: Recognition and Measurement. IFRS 9 retains but simplifies the mixed measurement model and establishes
two primary measurement categories for financial assets: amortized cost and fair value. The basis of classification depends on
an entity’s business model and the contractual cash flow of the financial asset. Classification is made at the time the financial
asset is initially recognized, namely when the entity becomes a party to the contractual provisions of the instrument. IFRS 9
must be applied starting January 1, 2015 with early adoption permitted. The Company is currently assessing the impact of
adopting IFRS 9 on the consolidated financial statements.
Noront Resources Ltd. – Notes to the Consolidated Financial Statements – 44
IFRS 10 Consolidated Financial Statements
In May 2011, the IASB issued IFRS 10 Consolidated Financial Statements to replace IAS 27 Consolidated and Separate
Financial Statements and SIC 12 Consolidation – Special Purpose Entities. The new consolidation standard changes the
definition of control so that the same criteria apply to all entities, both operating and special purpose entities, to determine
control. The revised definition focuses on the need to have both power and variable returns before control is present.
IFRS 10 must be applied starting January 1, 2013 with early adoption permitted. The Company is currently assessing the
impact of adopting IFRS 10 on the consolidated financial statements.
IFRS 11 Joint Ventures
In May 2011, the IASB issued IFRS 11 Joint Arrangements to replace IAS 31, Interests in Joint Ventures. The new
standard requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures
will be accounted for using the equity method of accounting whereas for a joint operation, the venturer will recognize its
share of the assets, liabilities, revenue and expenses of the joint operation. Under existing IFRS, entities have the choice to
proportionately consolidate or equity account for interest in joint ventures. IFRS 11 must be applied starting January 1, 2013
with early adoption permitted. The Company is currently assessing the impact of adopting IFRS 11 on the consolidated
financial statements.
IFRS 12 Disclosure of Interests in Other Entities
In May 2011, the IASB issued IFRS 12 Disclosure of Interests in Other Entities to create a comprehensive disclosure
standard to address the requirements for subsidiaries, joint arrangements and associates including the reporting entity’s
involvement with other entities. It also includes the requirements for unconsolidated structured entities (i.e. special purpose
entities). IFRS 12 must be applied starting January 1, 2013 with early adoption permitted. The Company is currently
assessing the impact of adopting IFRS 12 on the consolidated financial statements.
IFRS 13 Fair Value Measurement
In May 2011, the IASB issued IFRS 13 Fair Value Measurement as a single source of guidance for all fair value
measurements required by IFRS to reduce the complexity and improve consistency across its application. The standard
provides a definition of fair value and guidance on how to measure fair value as well as a requirement for enhanced
disclosures. IFRS 13 must be applied starting January 1, 2013 with early adoption permitted. The Company is currently
assessing the impact of adopting IFRS 13 on the consolidated financial statements.
4.
CAPITAL MANAGEMENT
The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in
order to support the acquisition, exploration and development of mineral properties. The Board of Directors does not establish
quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain
future development of the business. The Company defines capital to include its capital stock, warrant, and option components of
its shareholders’ equity.
The properties in which the Company currently has an interest are in the development and exploration stage; as such the
Company is dependent on external financing to fund its activities. In order to carry out the planned exploration and pay for
administrative costs, the Company will spend its existing working capital and raise additional amounts as needed. The Company
will continue to assess new properties and seek to acquire an interest in additional properties if it feels there is sufficient geologic
or economic potential and if it has adequate financial resources to do so.
Management has chosen to mitigate the risk and uncertainty associated with raising additional capital within current economic
conditions by:
i) minimizing discretionary disbursements;
ii)
iii) exploring alternate sources of liquidity.
reducing or eliminating exploration expenditures which are of limited strategic value; and
Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size
of the Company, is reasonable. There were no changes in the Company’s approach to capital management during the year ended
April 30, 2012. The Company is not subject to externally imposed capital requirements.
Noront Resources Ltd. – Notes to the Consolidated Financial Statements – 45
5.
PROPERTY AND FINANCIAL RISK FACTORS
a) Property Risk
The Company’s major mineral property is the McFaulds Lake Property in the “Ring of Fire” (Note 10). Unless the
Company acquires or develops additional material properties, the Company will be mainly dependent upon its existing
property. If no additional major mineral properties are acquired by the Company, any adverse development affecting the
Company’s major mineral property would have a materially adverse effect on the Company’s financial condition and results
of operations.
b) Financial Risk
The Company’s activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (including interest
rate, foreign exchange rate, and commodity price risk).
Risk management is carried out by the Company’s management team with guidance from the Audit Committee under
policies approved by the Board of Directors. The Board of Directors also provides regular guidance for overall risk
management.
Credit Risk
Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. The Company’s
credit risk is primarily attributable to cash and cash equivalents and restricted cash. Cash and cash equivalents and restricted
cash, consist of cash on hand, term deposits and savings accounts with reputable financial institutions with strong credit
ratings which are closely monitored by management.
Liquidity Risk
The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when
due. As at April 30, 2012, the Company had cash and cash equivalents, restricted cash and liquid marketable securities
balances of $5,512,977 (April 30, 2011 $9,304,477) to settle current liabilities of $2,568,805 (April 30, 2011 $3,136,056).
All of the Company’s financial liabilities have contractual maturities of less than 30 days and are subject to normal trade
terms. The Company remains dependent upon financing from capital markets (see Note 1).
c) Market Risk
Market risk is the risk of loss that might arise from changes in market factors such as interest rates, foreign exchange rates,
and commodity and equity prices.
i)
Interest Rate Risk
The Company has cash balances and no interest bearing debt. The Company’s current policy is to invest excess cash in
investment-grade short-term deposit certificates and deposit accounts managed by its banking institutions.
The Company periodically monitors the investments it makes and is satisfied with the credit ratings of its banks.
ii) Foreign Currency Risk
The Company’s functional currency and reporting currency is the Canadian dollar and major purchases are transacted
in Canadian dollars. As such, the Company’s exposure to foreign currency risk is minimal at this time. The Company
does not currently have any plans for exploration activities in foreign jurisdictions.
iii) Price Risk
The Company is exposed to price risk with respect to commodity and equity prices. The Company closely monitors
commodity prices as it relates to the value and the future outlook of the Company’s mineral properties and equity prices
to determine the appropriate course of action to be taken for current and future projects.
Noront Resources Ltd. – Notes to the Consolidated Financial Statements – 46
Sensitivity Analysis
Based on management’s knowledge and experience of the financial markets, the Company believes the following movements
are “reasonably possible” over a twelve month period.
i) The Company does not hold balances in foreign currencies to give rise to exposure to foreign exchange risk.
ii) Commodity price risk could adversely affect the Company. In particular, the Company’s future profitability and viability
from mineral exploration depends upon the world market price of valuable minerals. Commodity prices have fluctuated
significantly in recent years. There is no assurance that, even as commercial quantities of minerals may be produced
in the future, a profitable market will exist for them. As of April 30, 2012, the Company is not a producer of valuable
minerals. As a result, commodity price risk may affect the completion of future equity transactions such as equity
offerings. This may also affect the Company’s liquidity and its ability to meet its ongoing obligations.
6.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of:
April 30, 2012
April 30, 2011
May 1, 2010
Cash deposits
Savings account and term deposits
$ 599,360
4,467,584
381,389
$
8,507,539
815,913
$
20,309,353
$ 5,066,944
$ 8,888,928
$ 21,125,266
7.
TAxES AND DUTIES RECEIVABLE
Taxes and duties receivable consist of:
April 30, 2012
April 30, 2011
May 1, 2010
Quebec Mining Duties Refund
Recoverable Sales Taxes
Refundable Tax Credits
Other receivables
$
-
203,143
-
59,764
$
691,710
750,332
283,705
-
$
891,710
442,988
-
-
$ 262,907
$ 1,725,747
$ 1,334,698
Noront Resources Ltd. – Notes to the Consolidated Financial Statements – 47
8.
EQUIPMENT
April 30, 2012
Cost
Accumulated Amortization
Equipment
$
2,448,124
732,160
Closing Net Book Value
$
1,715,964
Opening Net Book Value
Additions
Amortization
$
1,379,274
647,369
(310,679)
Furniture &
Fixtures
Leasehold
Improvements
Total
$
$
$
$
$
$
103,037
70,576
32,461
40,576
-
(8,115)
159,026
55,167
$
2,710,187
857,903
103,859
$ 1,852,284
129,824
-
(25,965)
$
1,549,674
647,369
(344,759)
Closing Net Book Value
$
1,715,964
$
32,461
$
103,859
$ 1,852,284
April 30, 2011
Cost
Accumulated Amortization
Closing Net Book Value
Opening Net Book Value
Additions
Amortization
$
$
$
Equipment
1,800,755
421,481
1,379,274
949,950
721,404
(292,080)
$
$
$
Furniture &
Fixtures
Leasehold
Improvements
$
$
$
103,037
62,461
40,576
13,197
33,354
(5,975)
$
$
$
159,026
29,202
129,824
43,917
105,211
(19,304)
Total
2,062,818
513,144
1,549,674
1,007,064
859,969
(317,359)
Closing Net Book Value
$
1,379,274
$
40,576
$
129,824
$
1,549,674
May 1, 2010
Equipment
Furniture &
Fixtures
Leasehold
Improvements
Total
Cost
Accumulated Amortization
$
1,079,350
129,400
$
69,683
56,486
$
53,815
9,898
$
1,202,848
195,784
Closing Net Book Value
$
949,950
$
13,197
$
43,917
$
1,007,064
9.
INTANGIBLE ASSETS
Computer software
April 30, 2012
April 30, 2011
May 1, 2010
Cost
Accumulated Amortization
Closing Net Book Value
$
$
285,790
217,773
$
278,829
154,977
$
227,386
56,846
68,017
$
123,852
$
170,540
Computer software
April 30, 2012
April 30, 2011
Opening Net Book Value
Additions
Amortization
$
$
123,852
6,961
(62,796)
170,540
51,443
(98,131)
Closing Net Book Value
$
68,017
$
123,852
Noront Resources Ltd. – Notes to the Consolidated Financial Statements – 48
10.
MINERAL PROPERTIES
The Company’s projects consist of:
(i) McFaulds Lake Property “Ring of Fire”,
James Bay Lowlands, Northeastern Ontario
100% interest subject to net smelter return
(“NSR”) of 1%
(ii) Golden Valley Project, Ontario
Option to earn up to 35% interest in the property
located in the James Bay Lowlands owned by Golden
Valley Mines Ltd.
(iii) Garden Island, Quebec
50% interest in the Garden Island gold base metal
property located near Val d’Or, Quebec
April 30, 2012
April 30, 2011
May 1, 2010
$
1,438,104
$
1,428,399
$
1,428,399
175,000
175,000
175,000
250,000
250,000
250,000
$
1,863,104
$
1,853,399
$
1,853,399
11.
PROVISION FOR ENVIRONMENTAL ExPENDITURE
McFaulds Lake
The Company’s management has re-assessed the demobilization obligation relating to the McFaulds Lake Property as at April 30,
2012 and established a provision of $566,378 representing the estimated present value of its future obligation. None of these costs
are expected to be incurred within the next twelve months.
The site remediation provision liability is based upon the following estimates and assumptions:
a) Total undiscounted future demobilization cost is $725,730
b) Real risk-free pre-tax discount rate of 2.51%
c) Obligation expected to be realized in 10 years
Windfall Lake
In accordance with the requirements of the Quebec Ministry of Natural Resources, the Company has developed a site
remediation and restoration plan for its Windfall Lake project operations. The Company has established a provision of $654,877,
representing the estimated present value of its future obligation. Of this provision, $516,480 will be incurred within the next
twelve months. A summary of the changes in the site remediation provision is set out below:
Balance, beginning of year
Accretion expense for the year
Re-measurement of provision
April 30, 2012
April 30, 2011
$
$
652,478
2,399
-
743,922
10,717
(102,161)
$
654,877
$
652,478
The site remediation provision liability is based upon the following estimates and assumptions:
a) Total undiscounted future remediation costs is estimated to be $665,280. (2011 - $665,280; 2010 - $779,400)
b) Real risk-free pre-tax discount rate of 1.34% (April 30, 2011 - 1.67%, May 1, 2010 - 1.81%)
The Company secured a financial guarantee in favour with the Minister of Finance of Quebec on August 30, 2008 in the
amount of $385,046, which was satisfied by means of a letter of credit. The letter of credit is secured by a guaranteed investment
certificate which is included in restricted cash.
Noront Resources Ltd. – Notes to the Consolidated Financial Statements – 49
12.
CAPITAL STOCK
(a) Authorized
Unlimited common shares without par value
(b) Issued
Balance, May 1, 2010
Flow-through private placement (i)
Flow-through share premium
Share issue costs
Broker warrants allocation
Exercise of options
Fair value of exercise of options
Balance, April 30, 2011
Flow-through private placement (iii)
Flow-through share premium
Issue of shares (ii)
Share issue costs
Warrants allocation
Exercise of options
Fair value of exercise of options
Number of Shares
Value
167,885,442
15,673,200
-
-
-
583,332
-
184,141,974
4,073,800
-
20,234,967
-
-
49,999
-
$ 116,837,016
23,998,456
(2,388,818)
(1,516,035)
(154,244)
400,666
345,050
$ 137,522,091
3,503,468
(244,428)
17,402,072
(418,380)
(1,159,464)
31,001
26,849
Balance, April 30, 2012
208,500,740
$ 156,663,209
(i) On May 12, 2010, the Company closed a private placement financing, issuing 7,598,200 flow-through common shares
(“Flow-Through Shares”) at a price of $1.83 per Flow-Through Share to raise gross proceeds of $13,904,706
(the “Offering”). Costs of issue include a cash fee equal to 5% of the gross proceeds of the Offering, paid to the Agents
and 379,910 Broker Warrants issued on May 12, 2010 with an exercise price of $1.83.
On November 26, 2010, the Company closed a private placement financing, issuing 8,075,000 flow-through common
shares (“Flow-Through Shares”) at a price of $1.25 per Flow-Through Share to raise gross proceeds of $10,093,750
(the “Offering”). Costs of issue include a cash fee equal to 5% of the gross proceeds of the Offering, paid to the Agents.
(ii) On June 2, 2011, the Company completed an investment by Baosteel Resources International Co., Ltd. (“Baosteel”).
Baosteel has acquired 20,234,967 Units of Noront at a price of $0.86 per Unit. Each Unit consists of one common
share and one half of one common share purchase warrant (each whole warrant a “Warrant”). Each Warrant shall
be exercisable to acquire one common share of Noront at an exercise price equal to $1.16 for a period of 24 months
following the closing date. Net proceeds of the common share portion are approximately $17.4 million.
(iii) On December 20, 2011, the Company closed a private placement financing, issuing 4,073,800 flow-through common
shares (Flow-Through Shares”) at a price of $0.86 per Flow-Through Share for gross proceeds of $3,503,468 (the
“Offering”). Costs of the issue include 5% of the gross proceeds of the Offering, paid to the Agents.
Noront Resources Ltd. – Notes to the Consolidated Financial Statements – 50
(c) Stock Options
Under the provisions of the Company’s 2007 Incentive Stock Option Plan, an aggregate maximum of 10% of the issued
and outstanding common shares may be issued for granting of options to directors, senior officers, full time employees of
the Company, affiliates or subsidiaries, or any consultants to the Company. The terms of the awards under the Plan are
determined by the Board of Directors.
For the year ended April 30, 2012, stock-based compensation of $2,257,010 (2011 - $2,030,881) was charged to net loss.
(i) On May 5, 2011, the Company granted 3,350,000 incentive stock options to employees and directors of the Company
at an exercise price of $0.88. The share price on May 5, 2011 was $0.84.
The fair value assigned was estimated using the following assumptions:
Dividend yield
Expected volatility
Risk-free interest rate
Expected life
Forfeiture rate
0%
115.63%
2.19%
5 years
7%
The stock options were assigned a value of $2,279,340.
(ii) On November 3, 2011, the Company granted 300,000 incentive stock options to a director of the Company at an
exercise price of $0.86. The share price on November 3, 2011 was $0.82.
The fair value assigned was estimated using the following assumptions:
Dividend yield
Expected volatility
Risk-free interest rate
Expected life
Forfeiture rate
0%
97.94%
1.34%
5 years
9%
The stock options were assigned a value of $179,400.
(iii) On December 6, 2011, the Company granted 200,000 incentive stock options to contractors of the Company at an
exercise price of $0.86. The share price on December 6, 2011 was $0.76.
The fair value assigned was estimated using the following assumptions:
Dividend yield
Expected volatility
Risk-free interest rate
Expected life
Forfeiture rate
0%
97.40%
1.26%
5 years
9%
The stock options were assigned a value of $108,800.
(iv) On March 14, 2012, the Company granted 100,000 incentive stock options to an employee of the Company at an
exercise price of $0.86. The share price on March 14, 2012 was $0.62.
The fair value assigned was estimated using the following assumptions:
Dividend yield
Expected volatility
Risk-free interest rate
Expected life
Forfeiture rate
0%
95.21%
1.52%
5 years
9%
The stock options were assigned a value of $41,900.
Noront Resources Ltd. – Notes to the Consolidated Financial Statements – 51
The weighted average remaining contractual life and weighted average exercise price of options outstanding and options
exercisable as at April 30, 2012 are as follows:
Number of
Stock Options
Outstanding
Black-Scholes
Value
Exercise
Price
Remaining
Contractual
Life (Years)
Number of
Stock Options
Exercisable
225,000
50,000
590,000
1,900,000
2,516,668
300,000
100,000
1,100,000
390,000
250,000
180,000
3,350,000
300,000
200,000
100,000
776,250
153,500
1,952,900
1,189,400
1,351,451
733,200
194,400
1,809,500
710,580
251,000
130,392
2,279,340
179,400
108,800
41,900
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
5.13
4.86
3.90
0.80
0.62
2.70
2.15
1.84
2.09
1.36
1.25
0.88
0.86
0.86
0.86
0.53
0.62
1.12
1.53
2.17
2.27
2.36
2.46
2.62
3.09
3.65
4.02
4.52
4.61
4.88
225,000
50,000
590,000
1,900,000
1,961,112
300,000
66,667
933,333
323,333
83,333
180,000
358,329
300,000
100,000
-
Expiry Date
November 2012
December 2012
June 2013
November 2013
June 2014
August 2014
September 2014
October 2014
December 2014
June 2015
December 2015
May 2016
November 2016
December 2016
March 2017
11,551,668
$ 11,862,013
$
1.27
2.73
7,371,107
The fair value of unvested options as at April 30, 2012 is $3,016,033.
The following table summarizes the stock option transactions for the year ended April 30, 2012 and 2011:
May 1, 2010
Granted
Exercised
Forfeited
April 30, 2011
Granted
Exercised
Expired
Forfeited
Number
of Options
Weighted Average
Exercise Price
10,536,668
785,000
(583,332)
(2,499,169)
8,239,167
3,950,000
(49,999)
(75,000)
(512,500)
$
$
$
$
$
$
$
$
$
1.67
1.26
(0.69)
(2.40)
1.48
0.88
(0.62)
(0.75)
(1.68)
Balance, April 30, 2012
11,551,668
$
1.27
The weighted average share price at the date of exercise was $0.79 (2011 - $1.32)
Noront Resources Ltd. – Notes to the Consolidated Financial Statements – 52
(d) Warrants and Broker Warrants
(i) Warrants
A summary of the status of the Company’s warrants as of April 30, 2012, and changes during the year are as follows:
May 1, 2010
Issued
At April 30, 2011
Issued
At April 30, 2012
Number of Warrants Weighted Average
Fair Value
Exercise price
$
$
4.00
-
4.00
1.16
722,150
-
722,150
10,117,483
$ 1,416,211
-
$ 1,416,211
1,159,464
10,839,633
$
1.35
$ 2,575,675
On December 11, 2009, the Company issued an aggregate of 722,150 warrants, exercisable at $4.00, in accordance with
the terms of its offer to purchase all the common shares of Freewest. Each warrant entitles the holder to acquire one
Noront common share. The warrants expire in December 2014. The fair value of the 722,150 warrants was calculated
to be $1,416,211 using the Black-Scholes option pricing model utilizing the following assumptions: dividend yield of
0%; risk-free interest rate of 2.30%; expected life of five years and a volatility of 133.5%. The share price on December 11,
2009 was $2.09.
On June 2, 2011, the Company issued an aggregate of 10,117,483 warrants, exercisable at $1.16, in accordance with
the terms of the investment by Baosteel. Each warrant entitles the holder to acquire one Noront common share for a
period of 24 months. The warrants expire in June 2013. The fair value of the 10,117,483 warrants was calculated to be
$1,159,464 using the Black-Scholes option pricing model utilizing the following assumptions: dividend yield of 0%;
risk-free interest rate of 1.48%; expected life of two years and a volatility of 50%. The share price on June 2, 2011 was $0.76.
(ii) Broker warrants
A summary of the status of the Company’s broker warrants as of April 30, 2012, and changes during the year are as
follows:
Balance, May 1, 2010
Issued
Balance, April 30, 2011
Expired
Balance, April 30, 2012
Number of Warrants Weighted Average
Fair Value
Exercise price
$
$
$
-
1.83
1.83
1.83
-
-
379,910
379,910
(379,910)
-
$
$
$
-
154,244
154,244
(154,244)
-
On May 12, 2010, the Company issued an aggregate of 379,910 warrants, exercisable at $1.83, as part of the cost of
the private placement financing. Each warrant entitled the holder to acquire one Noront common share. The warrants
expired in May 2011. The fair value of the 379,910 warrants was calculated to be $154,244 using the Black-Scholes
option pricing model utilizing the following assumptions: dividend yield of 0%; risk-free interest rate of 2.69%;
expected life of one year and a volatility of 95.83%. The share price on May 12, 2010 was $1.39.
Noront Resources Ltd. – Notes to the Consolidated Financial Statements – 53
13.
INCOME TAxES
A reconciliation between the tax expense and the product of accounting loss multiplied by the Company’s domestic tax rate is as
follows:
Statutory tax rate
2012
27.59%
2011
30.99%
Loss before recovery of income taxes
$ (28,752,281)
$ (35,868,991)
Expected income tax recovery
Permanent differences
Benefits of tax attributes not recognized
(7,932,754)
529,185
7,403,569
(11,115,800)
208,130
10,907,670
Total tax expense
$
-
$
-
The 2012 statutory tax rate of 27.59% differs from the 2011 statutory tax rate of 30.99% because of the reduction in both federal
and Ontario substantively enacted tax rates.
The Company offsets tax assets and liabilities if and only if it has a legally enforceable right to set off the current tax assets and
current tax liabilities or deferred tax assets and liabilities and they relate to taxes levied by the same tax authority.
The tax benefit of the following unused tax losses and deductible temporary differences have not been recognized in the financial
statements due to the unpredictability of future earnings.
2012
2011
$
207,173
63,703,094
1,221,255
3,784,323
36,592,330
2,705,893
$
496,767
54,964,075
652,478
3,784,323
23,360,113
3,666,849
108,214,068
86,924,605
Deductible Temporary Differences
Marketable securities
Mineral properties
Provision for environmental expenditure
Capital losses
Loss carryforwards
Share issue costs
The Company’s non capital income tax losses expire as follows:
2014
2015
2027
2028
2029
2030
2031
2032
$
63,219
388,136
499,732
1,179,805
6,895,022
7,720,158
6,614,041
13,232,217
$ 36,592,330
Noront Resources Ltd. – Notes to the Consolidated Financial Statements – 54
14.
RELATED PARTY TRANSACTIONS
The Company engaged Penguin Automated Systems (“Penguin”) after completing an independent tendering process; under the
direction of Micon International, Lead Consultant for certain technical studies. The Company’s Chief Operating Officer has a
38.5% ownership interest in Penguin. Professional fees paid to Penguin for the year ended April 30, 2012, were $1,098,239 (year
ended April 30, 2011 - $783,965) and the amount payable to Penguin as at April 30, 2012 is $392,292 (April 30, 2011 - $157,917;
May 1, 2010 - $NIL).
The above noted transaction is in the normal course of business or normal commercial terms and conditions, as agreed by the parties.
15.
LOSS PER SHARE
For the year ended April 30,
2012
2011
Net loss attributable to common shareholders
$ (28,752,281)
$ (35,868,991)
Weighted average shares
outstanding - basic and fully diluted
204,051,816
179,102,627
Loss per share - basic
$
(0.14)
$
(0.20)
As result of the net loss for the years ended ended April 30, 2012 and 2011, the potential effect of the exercise of stock options
and warrants was anti dilutive. Thus, basic loss per share and diluted loss per share are equal for the years presented.
16.
COMMITMENTS AND CONTINGENCIES
a) Under the terms of leases for office space, vehicles and equipment, the Company is obligated to minimum annual rent
payments of $162,474 in fiscal 2013, $6,135 in fiscal 2014 and $2,045 in fiscal 2015.
b) The Company has secured a letter of credit in favour of the Quebec Government in the amount of $385,046, to cover a
portion of the estimated cost of work under a corresponding site remediation plan submitted thereto.
c) Subsequent to the year end, the Company received a Notice of Assessment from the Government of Quebec relating to their
audit of the Quebec income tax returns filed for the 2008 and 2009 fiscal year ends. Per the assessment, the Company is
required to remit taxes totaling $895,748 relating to tax credits for exploration expenditures which were previously refunded
by the Government of Quebec. The Company has filed a Notice of Objection related to the assessment. The Company
has reviewed the expenditures with its tax advisor and has included a provision of approximately $250,000 in the current
financial statements which represents management’s estimate of the obligation.
17.
COMPENSATION OF KEY MANAGEMENT
For the year ended April 30,
2012
2011
Salaries, employee benefits and directors’ fees
Share-based compensation
$
1,777,162
1,913,843
$
1,369,468
1,280,500
$ 3,691,005
$
2,649,968
Key management includes the 7 directors and 5 members of the executive management team.
Noront Resources Ltd. – Notes to the Consolidated Financial Statements – 55
18.
SUPPLEMENTARY ExPENSE INFORMATION
For the year ended April 30,
2012
2011
Exploration Expenditures and Mining Studies
Camp operations
Drilling
Geophysics
Technical studies
Environmental studies and consultation
Other
$ 5,221,949
8,489,285
862,398
3,513,811
3,474,801
289,891
$
9,284,989
13,710,827
999,486
4,459,393
1,710,426
967,393
$ 21,852,135
$
31,132,514
Included in exploration expenditures and mining studies is $1,445,472 of salaries and benefits (2011 - $1,396,926) and
$1,948,886 of supplies inventory (2011 - $3,212,227) expensed during the year.
For the year ended April 30,
2012
2011
Office and General:
Salaries, benefits and directors’ fees
Administrative and other expenses
Professional fees
Communications & travel
19.
SUBSEQUENT EVENTS
$ 2,472,094
806,924
678,147
786,565
$
2,173,993
1,239,327
785,052
1,287,124
$ 4,743,730
$
5,485,496
(i) On May 10, 2012, the Company completed a private placement with Resource Capital Fund V L.P. (“RCF”), pursuant to
which RCF subscribed for 19,230,769 common shares in the capital of the Company (the “Common Shares”) at a purchase
price of $0.52 per Common Share, representing gross proceeds to the Company of approximately $10 million.
(ii) On May 25, 2012, the Company completed a private placement with Baosteel Resources International Co. Ltd. (“Baosteel”),
pursuant to which Baosteel has exercised its right to maintain its 9.9% interest in the Company. Baosteel acquired an
additional 2,566,151 Common Shares at a purchase price of $0.52, representing gross proceeds to the Company of
approximately $1.33 million.
The proceeds received by the Company from the completion of both transactions will be used to advance the development
of the Company’s McFaulds Lake Property.
(iii) On July 17, 2012, the Company granted 2,500,000 incentive stock options to employees and directors of the Company at an
exercise price of $0.46 with an expiry date of 5 years subject to vesting provisions.
(iv) On May 1, 2012, the Company purchased certain assets relating to the camp operations at the McFaulds Lake Property
for a total of $585,000. These assets were part of a lease agreement which ended on April 30, 2012. The amount to be
capitalized is $421,200 with the balance of $163,800 to be charged to net loss.
Noront Resources Ltd. – Notes to the Consolidated Financial Statements – 56
20.
RECONCILIATION FROM CANADIAN GAAP TO IFRS
The information included in this note is reconciled to the previously reported Canadian GAAP balance sheets as at May 1, 2010
and April 30, 2011 and the consolidated statement of operations for the year ended April 30, 2011.
a) Reconciliation of Consolidated Balance Sheets as reported under Canadian GAAP and IFRS:
CGAAP
April 30, 2011
Effect of
Transition
CGAAP
April 30, 2011 April 30, 2010
IFRS
Effect of
Transition
IFRS
May 1, 2010
Assets
Current assets
Cash and cash equivalents
Restricted cash
Marketable securities
Taxes and duties receivable
Supplies inventory
Prepaid expenses
Total current assets
Non-current assets
Equipment
Intangible assets
Mineral properties
Total non-current assets
Total Assets
i
ii
ii
i
Liabilities and
Shareholders’ Equity
Current liabilities
Accounts payable
Deferred flow-through
share premium
Provision for environmental
expenditure
iii
iv
$
$
$
$
8,888,928
385,046
30,503
1,725,747
-
222,063
-
-
-
-
1,611,097
-
$ 8,888,928
385,046
30,503
1,725,747
1,611,097
222,063
$ 21,125,266
385,046
666,587
1,334,698
-
334,266
$
-
-
-
-
4,100,859
-
$ 21,125,266
385,046
666,587
1,334,698
4,100,859
334,266
11,252,287
1,611,097
12,863,384
23,845,863
4,100,859
27,946,722
386,610
-
108,788,374
1,163,064
123,852
(106,934,975)
1,549,674
123,852
1,853,399
421,472
-
78,944,105
585,592
170,540
(77,090,706)
1,007,064
170,540
1,853,399
109,174,984
$
(105,648,059)
$ 3,526,925
$ 79,365,577
$ (76,334,574)
$ 3,031,003
120,427,271
$
(104,036,962)
$ 16,390,309
$ 103,211,440
$ (72,233,715)
$ 30,977,725
$
2,525,206
$
-
$ 2,525,206
$ 3,264,260
$
-
$ 3,264,260
-
94,370
94,370
-
474,369
474,369
564,372
(47,892)
516,480
575,071
(42,648)
532,423
Total current liabilities
3,089,578
46,478
3,136,056
3,839,331
431,721
4,271,052
Non-current liabilities
Provision for environmental
expenditure
Deferred income taxes
iv
v
125,553
6,297,894
10,445
(6,297,894)
135,998
-
194,426
2,267,243
17,073
(2,267,243)
211,499
-
Total non-current liabilities
Total Liabilities
$
$
6,423,447
9,513,025
Shareholders’ Equity
Capital Stock
Warrants
Contributed surplus
Deficit
Accumulated other
vi
$
vii
136,879,569
1,570,455
26,576,133
(53,942,414)
$
$
$
(6,287,449)
(6,240,971)
$
135,998
$ 3,272,054
$ 2,461,669
$ 6,301,000
$
$
(2,250,170)
(1,818,449)
$
211,499
$ 4,482,551
642,522
-
(205,183)
(98,233,330)
$ 137,522,091
1,570,455
26,370,950
(152,175,744)
$ 119,426,281
1,416,211
24,792,847
(45,881,216)
$
(2,589,265)
-
(107,728)
(70,425,537)
$ 116,837,016
1,416,211
24,685,119
(116,306,753)
comprehensive loss
viii
(169,497)
-
(169,497)
(2,843,683)
2,707,264
(136,419)
Total shareholders’ equity
Total Liabilities and Equity
$
$
110,914,246
120,427,271
$
$
(97,795,991)
(104,036,962)
$ 13,118,255
$ 16,390,309
$ 96,910,440
$ 103,211,440
$ (70,415,266)
$ (72,233,715)
$ 26,495,174
$ 30,977,725
Noront Resources Ltd. – Notes to the Consolidated Financial Statements – 57
b) Reconciliation of Consolidated Loss and Comprehensive Loss as reported under Canadian GAAP and IFRS:
Expenses
Exploration expenditures
Office & general
Professional fees
Communication & travel
Amortization
Share-based compensation
Write-down of securities
Loss before finance items and income tax
Interest income
Flow-through share premium
Loss before tax
Deferred income tax recovery
Net loss
Unrealized loss on available for sale
marketable securities
Reclassification of losses realized
i
$
CGAAP
April 30, 2011
Effect of
Transition
IFRS
April 30, 2011
85,900
3,413,320
785,052
1,287,124
224,869
1,584,911
2,452,370
$ 31,057,331
-
-
-
190,624
445,970
(2,707,270)
$ 31,143,231
3,413,320
785,052
1,287,124
415,493
2,030,881
(254,900)
9,833,546
(182,393)
-
28,986,655
-
(2,768,817)
38,820,201
(182,393)
(2,768,817)
9,651,153
1,589,955
26,217,838
(1,589,955)
35,868,991
-
$
$
8,061,198
$ 27,807,793
$ 35,868,991
$
$
33,025
(2,707,211)
-
2,707,264
33,025
53
ii
vii
viii
iii
v
viii
Total comprehensive loss
$
5,387,012
$ 30,515,057
$ 35,902,069
c) Reconciliation of Consolidated Shareholders’ Equity and Deficit as reported under Canadian GAAP and IFRS:
Shareholders’ Equity previously reported under Canadian GAAP
Adjustments upon adoption of IFRS:
Change in capitalization policy - Mineral properties
Change in capitalization policy - Equipment additions
Change in flow-through shares premium liability
Change in discount rate for provision of environmental expenditure
Change in provision for deferred income tax
April 30, 2011
May 1, 2010
$ 110,914,246
$ 96,910,440
i
ii
iii
iv
v
(105,323,878)
1,286,916
(94,370)
37,447
6,297,894
(72,989,847)
756,132
(474,369)
25,575
2,267,243
Shareholders’ Equity reported under IFRS
$ 13,118,255
$ 26,495,174
Deficit previously reported under Canadian GAAP
Adjustments upon adoption of IFRS:
Change in capitalization policy - Mineral properties
Change in capitalization policy - Equipment additions
Change in flow-through shares premium liability and
related tax effect reversals
Change in discount rate for provision of environmental expenditure
Change in provision for deferred income tax
Change in capitalization policy - Share-based compensation
Change in impairment - Marketable securities
iv
v
vii
viii
April 30, 2011
May 1, 2010
$ (53,942,414)
$
(45,881,216)
i
ii
(105,323,878)
1,286,916
(72,989,847)
756,132
(736,892)
37,447
6,297,894
205,183
-
2,114,896
25,575
2,267,243
107,728
(2,707,264)
Deficit reported under IFRS
$ (152,175,744)
$(116,306,753)
Noront Resources Ltd. – Notes to the Consolidated Financial Statements – 58
i) Mineral Properties, Supplies Inventory & Exploration Expenditures and Technical Studies
The Company has chosen the accounting policy to expense exploration expenditures. As a result, supplies inventory
consisting of fuel that is utilized in exploration activities will be separately disclosed as a current asset. The impact is:
Mineral properties - Canadian GAAP
Mineral properties - IFRS
April 30, 2011
May 1, 2010
$ 108,788,374
1,853,399
$ 78,944,105
1,853,399
Decrease in Mineral Properties
$ 106,934,975
$ 77,090,706
Increase in Supplies inventory
$
1,611,097
$
4,100,859
Net change due to Capitalization Policy
$ 105,323,878
$ 72,989,847
Exploration expenditures and mining studies - Canadian GAAP
Exploration expenditures and mining studies - IFRS
April 30, 2011
$
85,900
31,143,231
Increase in Exploration Expenditures and Mining Studies
$ 31,057,331
ii) Equipment & Intangible Assets
As a result of IFRS, capital assets that were previously capitalized as a part of mineral properties under Canadian
GAAP are now included in equipment and computer software is reclassified as intangible assets. The impact is:
Equipment - Canadian GAAP
Equipment - IFRS
April 30, 2011
May 1, 2010
$
386,610
1,549,674
$
421,472
1,007,064
Increase in Net Book Value of Equipment
$
1,163,064
$
585,592
Intangible assets - Canadian GAAP
Intangible assets - IFRS
April 30, 2011
May 1, 2010
$
-
123,852
$
-
170,540
Increase in Net Book Value of Intangible Assets
$
123,852
$
170,540
Amortization - Canadian GAAP
Amortization - IFRS
Increase in Amortization
April 30, 2011
$
224,869
415,493
$
190,624
Noront Resources Ltd. – Notes to the Consolidated Financial Statements – 59
iii) Deferred Flow-Through Share Premium
Under IFRS, the Company must recognize a liability for the premium on flow-through shares paid by investors.
The liability recorded on transition to IFRS reduced the share capital previously recorded under Canadian GAAP.
As flow-through expenses are incurred, the liability is reduced and recorded in the consolidated statement of loss.
Deferred Flow-Through Share Premium - Canadian GAAP
Deferred Flow-Through Share Premium - IFRS
Increase in Deferred Flow-Through Share Premium
Flow-Through Share Premium - Canadian GAAP
Flow-Through Share Premium - IFRS
Increase in Flow-Through Share Premium
iv) Provision for Environmental Expenditure
April 30, 2011
May 1, 2010
-
94,370
94,370
$
$
-
474,369
474,369
$
$
April 30, 2011
$
-
2,768,817
$
2,768,817
Under Canadian GAAP, the Company used a weighted average risk-adjusted discount rate of 8% and applied an
inflation rate of 3%. Under IFRS, by applying the real risk-free pre-tax discount rate and excluding the effect of
inflation as required by IAS 37, the site remediation provision changes as follows:
Current Portion
Provision - Canadian GAAP
Provision - IFRS
April 30,
2011
May 1,
2010
$
564,372
516,480
$
575,071
532,423
Decrease in Current Portion of Provision for Environmental Expenditure
$
47,892
$
42,648
Non-Current Portion
Provision - Canadian GAAP
Provision - IFRS
Increase in Non-Current Portion of Provision for
Environmental Expenditure
Net Change in Provision for Environmental Expenditure
$
$
$
125,553
135,998
10,445
37,447
$
$
$
194,426
211,499
17,073
25,575
Noront Resources Ltd. – Notes to the Consolidated Financial Statements – 60
v) Deferred Income Taxes
The Company has selected the policy to expense exploration expenditures. As a result, the deferred income tax liability
recognized is no longer required under IFRS.
Deferred tax liability - Canadian GAAP
Deferred tax liability - IFRS
April 30, 2011
May 1, 2010
$
6,297,894
-
$
2,267,243
-
Decrease in Deferred Income Tax Liability
$
6,297,894
$
2,267,243
Deferred income tax recovery - Canadian GAAP
Deferred income tax recovery - IFRS
Decrease in Deferred Income Tax Recovery
vi) Capital Stock
April 30, 2011
$
1,589,955
-
$
1,589,955
Under IFRS, the Company must recognize a liability for the premium on flow-through shares paid by investors.
The liability recorded on transition to IFRS reduced the share capital previously recorded under Canadian GAAP.
Capital Stock - Canadian GAAP
Capital Stock - IFRS
April 30, 2011
May 1, 2010
$ 136,879,569
137,522,091
$ 119,426,281
116,837,016
Decrease (Increase) in Capital Stock
$
(642,522)
$
2,589,265
vii) Share-Based Compensation & Contributed Surplus
Options issued to officers, employees and directors are measured using the grant date fair value of the equity instrument
as required by IFRS 2. Based on the Company’s options history, the forfeiture rate is 5% and the Company expects that
95% of the options will vest. The impact of applying IFRS 2 is calculated as follows:
Contributed Surplus - Canadian GAAP
Contributed Surplus - IFRS
April 30, 2011
May 1, 2010
$ 26,576,133
26,370,950
$ 24,792,847
24,685,119
Decrease in Contributed Surplus
$
205,183
$
107,728
Share-Based Compensation Expense - Canadian GAAP
Share-Based Compensation Expense - IFRS
Increase in Share-Based Compensation
April 30, 2011
$
1,584,911
2,030,881
$
445,970
Noront Resources Ltd. – Notes to the Consolidated Financial Statements – 61
viii) Accumulated Other Comprehensive Loss & Write-Down of Securities
The marketable securities written down in the three months ended July 31, 2010 had an impairment under Canadian
GAAP that was significant and prolonged. Under IFRS, this impairment would require write-down when there is
either significant or prolonged decline in value, therefore the impairment is recognized at the opening balance sheet
date, May 1, 2010.
Accumulated Other Comprehensive Loss - Canadian GAAP
Accumulated Other Comprehensive Loss - IFRS
Increase in Accumulated Other Comprehensive Loss
April 30, 2011
May 1, 2010
$
$
(169,497)
(169,497)
$
(2,843,683)
(136,419)
-
$
(2,707,264)
d) Reconciliation of Consolidated Statements of Cash Flow as reported under Canadian GAAP and IFRS:
CGAAP
April 30, 2011
Effect of
Transition
IFRS
April 30, 2011
Net cash used in operating activities
$
(6,132,883)
$ (28,933,033)
$ (35,065,916)
Net cash used in investing activities
Net cash provided by financing activities
(28,986,545)
22,883,090
28,933,033
-
(53,512)
22,883,090
Change in cash and cash equivalents
$ (12,236,338)
$
-
$ (12,236,338)
Under the alternatives of IFRS 1 - First Time Adoption, the Company has selected the accounting policy to expense
exploration expenditures. As a result, the cash used in investing activities has been reclassified to operating activities.
e) Exemptions from full retrospective applications:
A number of optional exemptions from full retrospective application are available to the Company upon adoption of
IFRS. The impact of these optional exemptions on the Company is listed below. The Company has applied the following
exemptions:
Exemption
Application of exemption
Designation of previously
recognised financial instruments
The Company is electing for no change to the current policy, which is
to classify marketable securities as Available-For-Sale investments and
recording any changes in value to Other Comprehensive Income (Loss) until
the disposition of such securities.
Share-based payment transaction
The Company has elected to apply the share-based payment exemption.
It retroactively applied IFRS 2 to only those options that have not vested by
May 1, 2010.
Noront Resources Ltd. – Notes to the Consolidated Financial Statements – 62
Board of Directors
Darren Blasutti, CA
David Thomas, P.Geo
Joseph Hamilton, M.Sc, P.Geo,
CFA
Wes Hanson, P.Geo
Paul Parisotto, Chairman
Harry Lin, Ph.D
Ted Bassett, P.Eng
CORPORATE INFORMATION
Noront Resources Ltd.
Management
Wesley (Wes) C. Hanson, P.Geo,
President, Chief Executive Officer
Gregory R. Rieveley, CA,
Chief Financial Officer
Paul G. Semple, P.Eng,
Chief Operating Officer
Mark Baker, P.Eng,
Vice President, Projects
Glenn Nolan
Vice President, Aboriginal Affairs
Leanne Hall
Vice President, Human Resources
105 Adelaide Street West, Ste. 1100
Toronto, Ontario, Canada M5H 1P9
T: 416 367 1444
F: 416 367 5444
W: www.norontresources.com
Investor Relations
Olya Yousefi
Manager, Corporate Communications
Olya.yousefi@norontresources.com
Transfer Agent
Computershare Investor Services
100 University Ave.
9th Floor, North Tower
Toronto, Ontario, Canada M5J 2Y1
Legal Counsel
Fraser Milner Casgrain, LLP
Toronto, Ontario, Canada
Exchange Information
Shares Outstanding: 230,297,660
Shares Fully Diluted: 255,172,293
Toronto Venture Exchange: TSX.V
Symbol: NOT
Forward-Looking Statements
This release contains “forward-looking statements” within the meaning of applicable Canadian securities legislation, including predictions, projections and forecasts. Forward-looking
statements include, but are not limited to, statements that address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such
things as future business strategy, competitive strengths, goals, expansion, growth of the Company’s businesses, operations, plans and with respect to exploration results, the timing and
success of exploration activities generally, permitting time lines, government regulation of exploration and mining operations, environmental risks, title disputes or claims, limitations on
insurance coverage, timing and possible outcome of any pending litigation and timing and results of future resource estimates or future economic studies.
Often, but not always, forward-looking statements can be identified by the use of words such as “plans”, “planning”, “planned”, “expects” or “looking forward”, “does not expect”,
“continues”, “scheduled”, “estimates”, “forecasts”, “intends”, “potential”, “anticipates”, “does not anticipate”, or “belief ”, or describes a “goal”, or variation of such words and phrases or state
that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved.
Forward-looking statements are based on a number of material factors and assumptions, including, the result of drilling and exploration activities, that contracted parties provide goods
and/or services on the agreed timeframes, that equipment necessary for exploration is available as scheduled and does not incur unforeseen break downs, that no labour shortages or
delays are incurred, that plant and equipment function as specified, that no unusual geological or technical problems occur, and that laboratory and other related services are available
and perform as contracted. Forward-looking statements involve known and unknown risks, future events, conditions, uncertainties and other factors which may cause the actual results,
performance or achievements to be materially different from any future results, prediction, projection, forecast, performance or achievements expressed or implied by the forward-looking
statements. Such factors include, among others, the interpretation and actual results of current exploration activities; changes in project parameters as plans continue to be refined; future
prices of gold; possible variations in grade or recovery rates; failure of equipment or processes to operate as anticipated; the failure of contracted parties to perform; labour disputes and
other risks of the mining industry; delays in obtaining governmental approvals or financing or in the completion of exploration, as well as those factors disclosed in the Company’s publicly
filed documents. Although Noront has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking
statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will
prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-
looking statements.
Concept and Design: Kirkwood Communications • Project Management and Production: Walter J. Mishko & Co. Inc.
“Keeping our eye on your prize”
Wesley C. Hanson
President & CEO
NORONT RESOURCES LTD.
105 Adelaide Street West • Suite 1100 • Toronto, Ontario • Canada M5H 1P9
Phone: 416.367.1444 • Fax: 416.367.5444
www. norontresources.com
Printed in Canada using vegetable-based inks
on chlorine-free paper containing post consumer
product and which is 100% recyclable.